Price focused Sourcing is bad for business

We live in a capitalist society. It’s understandable that companies want the best prices on supplies and materials to make their products or provide a service.

When your procurement team is only motivated by price instead of the total cost, quality, delivery and logistics is lost. agreement-clip-art-478088

For example, your Procurement Manager may think, “Hey, we just saved 12% by switching to a new handbag manufacturer but then it comes to your attention that their workers are not as skilled as your former provider and the bags are in poor quality. Now you have to pay workers overtime to fix the issue and deliver to customers on time. Since they were focused on category savings they spent more money on zippers for the bags, in turn, going over budget for materials. That 12% did not save you much at all.

It is also important that accounting, sales, marketing, and procurement teams actively share data so that smart decisions and better forecasting can be made. For example, if the accounting team had made budget data available to the procurement team they would not have ordered more zippers.

Therefore, instead of focusing on price encourage your procurement team to engage suppliers in a several years contract with quality stipulations and locked in year by year price. Savings can also be realized by auditing invoices/Purchase orders to identify unapproved vendor charges, purchases and price increases.

In short, don’t look at price but the total cost.

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