David Roisum, Ph.D

Buying on price does not mean that you will get the greatest value. Rather, it guarantees you will not get the greatest value except in the rare case where the cheapest is also the best value. It also guarantees that you will not have the best equipment or even adequate after market support. The cheaper suppliers do not have research or pilot facilities. Therefore, the customer is the guinea pig in the very realest sense of the word. If things go wrong in the field, cheap suppliers will be quick to abandon the project because they have cut profit margins to the bone.

Hard negotiation to cut costs by playing one supplier against the other may also be counter- productive in the short run. You will lose options as more and more suppliers drop out. When pressed, suppliers may do things that are not in the best interest of either party. Examples include taking out recommended spare parts and training to get the quote down. Those suppliers that survive the negotiation process will remember the bitterness of the selling process and how little margin they have.

Hard negotiation is also counterproductive in the long run, a view not considered by the myopic focus of business. The suppliers are the greatest source of information and innovation in our industry. If you do not support them by allowing them adequate profit, they may not be around
to help you in the future. This is not merely industrial charity, this has practical consequence, especially in the recent decade where suppliers have reorganized, merged and gone out of
business. Every one of these business events means loss of information and resource for every company in that industry.

Reprinted courtesy of Dr. David Roisum, blogmaster of AIMCAL’s Web Handling and Converting Blog.