What do you take into account when making a purchase decision?

I recently had the rewarding opportunity to speak to a group of sales professionals. I asked them to tell me about the experiences that frustrated them the most. I got some interesting answers!

The phrase that was repeated most often was: “It's only a question of price! ”. These sellers felt that many buyers are not looking for the supplier that will best serve their organization but are always looking for the cheapest supplier.

Any other tips on indirect purchases?

I assured them that this was not the case in most mature procurement departments. However, this does not mean that there is no basis for their point of view.

Their experience is as follows:
It all comes down to what can be quantified in financial terms. So when price is the only thing that seems to be quantifiable, it can become the only question and the sole selection criterion. However, when paying a higher price can give a better quantifiable return (reducing hidden costs, for example), a well-trained buyer will make the decision that has the most favorable net impact down the line.

There are many other aspects of procurement and procurement that affect the overall cost and that will make the difference between two competing suppliers.

• Acquisition cost
• The cost of use
• The support cost
• The cost of maintenance
• The cost of disposal
• The cost of non-performance

This approach works when you have to deal with several competing suppliers with whom you have a history of commercial relationships and you want to consolidate your supply base in order to optimize purchases.

Here is a 6-step process:

• 1- First, define the “events” that constitute a poor service, poor delivery, or poor service qualitye. For example, a poor quality of service may be receiving an incorrect bill.

• 2- Then, for each “event”, determine the average cost for your organization. For example, an incorrect invoice may require Accounts Payable and Purchasing to devote 3 hours of work at an average hourly rate of €40 to solve the problem. Thus, the average cost is €120. Apply the same cost for this “event” to all suppliers.

• 3- Then, for each “event”, determine the rate of occurrence using historical data. For example, if 10 of the last 1000 supplier invoices provided were inaccurate, that supplier's occurrence rate is 1%. Each supplier will have a different rate.

• 4- Then, for each “event”, determine the number of opportunities for the event to occur. Sometimes suppliers may charge weekly on a two-year contract. There will be 104 opportunities for this event to happen. The number will depend on the operation of each of the providers.

• 5- Then, it is necessary to estimate the cost ofthe poor performance for each “event.” To do this, multiply together the average cost, the rate of occurrence and the number of possibilities per “event”. The cost of poor performance will differ depending on the provider.

• 6. Finally, for each supplier, add the total cost of all “events” ” at the total selling price of the product or service.

The supplier with the lowest total cost after taking into account the cost of non-performance will generally be the ideal choice.

Our advice on indirect purchases on video: