Cheapest is a Myth
Procurement teams need to be involved in making strategic decisions. This helps avoid problems, such as poor service, substandard goods, variations or late delivery. Their role is bigger than looking for cheapest supplier.
It is vital to acknowledge that, while sourcing best value for the organization, Procurement wears two hats:
The first hat is for dealing with the final recipient of the product or service. Procurement needs to listen carefully and understand all the details and peculiarities of the final deliverable. The price of a mistake here is too high. Any concerns or alternative solutions should be properly discussed before going to market.
The second hat is for dealing with vendors. Here procurement needs to obtain the maximum value for the organization, while keeping the vendors interested and motivated.
Let us debunk Procurement myths about cheapest price.
First, in Procurement profession do not even use the words “cheap”, “cheaper” or “cheapest”. We say “lower in price” or “lowest-priced” or “least expensive”.
Second, we never look at the price, if we are not satisfied with the quality. Even if the price is $0.00.
Third, we do not consider the price if delivery schedule and delivery conditions are not what we requested.
Forth, most often we give zero attention to price if the company offering products or services is not qualified and reliable. Some exceptions might apply for new technologies, know-hows and monopolies.
Fifth, we do not consider the price if a bidder disagrees with the terms of the contract we envisage.
Only after all these criteria are met, Procurement starts reviewing the price.
So, in practice, we might review the prices of only 5 offers out of 20 offers received. The remaining 15 would be filtered out because of the criteria above that come before price.
But, there is “one more thing” – Steve Jobs. Even comparing the prices at this stage does not mean the contract will be awarded to the lowest-priced offer. Buying organization might have several other preferences, for example awarding the contract to a greener enterprise, or giving a preference to an SME, or local business, or businesses run by women or people with disability, etc.
In other words, price is just one of those numerous factors Procurement considers.
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