There is more to supply than meets the eye. It’s more than just securing the lowest price, according to an Ohio-based business development manager who chose to remain anonymous. “The best price is not always about the money. If you look at price as the only indicator of what you will buy, you will likely not get the best product for your needs,” he said. The ABC’s of supply
There are several factors to consider when doing business with a supplier. John P. Bowler, founder and managing partner of consultancy Bowler Hunt, LLC, said the ABC’s of negotiating the best price with a supplier is Total Cost of Ownership, or the acronym, T.C.O.
While price certainly is a factor to consider when deciding from whom to purchase your much-needed widgets, several other elements comprise TCO. According to Bowler, other matters to consider include:
- The terms and conditions of sale
- Transportation/shipping costs
- Quality
- Inventory carrying cost
- Warranty charges
- Aftermarket/preventative maintenance
Looking ahead
As the global economy becomes increasingly competitive, some companies are seeking to gain advantages over competitors by expanding their views on TCO. In his book Islands of Profit in a Sea of Red Ink, author Jonathan L.S. Byrnes notes there is a paradigm shift occurring among forward-thinking entities in that they are focusing on maximizing profitability rather than merely minimizing cost. As an example, Byrnes cites Dell’s strategic decision to take that very approach with their inventory management system, said Bowler. As Dell committed to this philosophy, inventory levels continued to drop and order lead-time steadily decreased. Fueled by falling carrying costs, lower obsolete stock costs and component monthly price cuts, Dell’s profitability grew disproportionately.
“While there can be no denying TCO data-driven conclusions provide a competitive advantage to firms across various industries, the Dell model’s success points out the value in taking the TCO concept to the next level. Thinking “outside the box” of ways to maximize profitability in your supplier relationships rather than figuring ways to minimize supplier costs will earmark industry leaders in the future,” sums Bowler.
Tami Kamin Meyer is an Ohio attorney and writer.
