Collecting orders produces bad fruits
The world we live in thinks “low bid” rather than “best value.” Although many of us struggle with this archaic logic every day when trying to sell our products, the unscrupulous contractor is willing to cut corners when he acts as a buyer or as a seller. The lure of the dark side is strong when price is the primary decision tool and the value equation is thrown into the abyss. These times can sometimes find us at our worst, ready to create a Frankenstein’s monster of a bid by “handpicking” the best parts from quotes from various vendors.
Changing Provider Dynamics
As economic competition hardens, our own businesses are feeling the pressure. The normal flight to safety is short-term thinking. We may be willing to forego profitability just to “keep our people working” or even sell below market price “to buy some time to figure it all out.” It is at these times that we are likely to destroy strong relationships with trusted vendors in search of the single best deal.
For larger deals or orders, it has been common for years to request quotes from three to five of our most trusted vendors. They are distributors with whom we have worked before and from whom we have received good product and service. Years ago, sellers quoted prices per piece. Some contractors would review each quote and order the individual items from each supplier with the best price on that item, a method known as selective selection of quotes.
While it took some time, the supplier industry finally changed the way they presented their prices. Today, their deliverables are quotes, usually broken down into larger category areas. Most vendors provide a lump sum price in their quote for the entire order. If a contractor wants you to compete in only one category, for example ‘roofing’, most suppliers will be happy to quote just that category.
It has become much more difficult to select orders with this new vendor pricing model; however, some short-term thinking contractors still try to rig the system. Instead of considering the long-term benefits of strong supplier relationships, the unscrupulous contractor thinks only of today and doesn’t care who or what relationships he burns for today’s profits.
From the seller’s perspective
Suppliers understand the industry in which they work. They, like you, know that “low bid” is the name of the game. When they put together their quote, they have worked to give your company the best possible price according to their corporate bidding systems and profitability models. Each provider will have key points in different categories, which is what creates the situation in the first place.
A supplier may have bought excess wire when copper was trading at its recent low. Another may have a warehouse full of siding that they purchased from a competitor that is the perfect alternative for their listing. Another vendor may have recently had a hot run with windows by giving them special volume pricing from the manufacturer. In each situation, the supplier cuts their profit margin to the minimum in their sweet spot area to positively affect the overall listing price in hopes of winning your business for the entire order or at least the entire category.
The shortcut is less traveled for a reason
It’s easy to forget the value equation or the positive experiences associated with a supplier relationship when looking for the best price. When time or money is tight, it’s human nature to look for a shortcut; that is, some temporary solution outside the normal course of business that will quickly get you out of the current situation. Shortcuts always have consequences. They are more dangerous than the well traveled road; therefore, we should expect to suffer damage to our business due to our choice to take the short cut. In this case, the cuts and bruises are for our company’s reputation.
When an unscrupulous contractor selects quotes, it eliminates the providers ability to be profitable. Business should always be win-win-win with the end customer winning, your company winning, and your suppliers winning. When it is not, one or more of the parties is in a situation of misfortune that can lead to the termination of the business relationship. Or, they will adjust their prices upwards in future quotes, pricing your requests off-market.
Profitability must be sustainable
Sellers reward loyalty with loyalty. Sometimes this translates to offering you a unique source advantage that they might have given to one of your competitors. Other times it takes the form of a killer price on a quote. Most of the time, returned loyalty comes in the form of service. The CEO of a vendor you’ve been loyal to will get up from the table, leave his wife and kids in the middle of the night, and drive across town in an urgent situation to save your job. Should you expect that kind of super service from a vendor you order from only when their price is the lowest? How much is that kind of service worth to you at the time of greatest need?
You must stay competitive. In this economic environment, as in most, that comes down to price. Be frugal. Watch out for the pennies and the dollars will take care of themselves. Just don’t sacrifice long-standing relationships and downgrade the service to save a few bucks. Often the lowest price is the lowest value. Offer the best value to your customers and accept nothing less than the best value from your suppliers.