Purchasing Strategy

Purchasing Strategy

When purchasing big-ticket products or services for your company (or even hiring people), the initial pool of prospective vendors should consist of notable industry leaders plus other vendors who have been referred to you personally by business associates or personal connections.

If you have an uneasy feeling, or you don’t fully trust any of the possible vendors, then you should immediately eliminate them from your prospect list regardless of their pricing and services. Additionally, you should always be direct and polite to all the potential vendors who have to be eliminated.

When you are done with your basic research and analysis, you should have at least three candidates left to consider further business discussions and negotiations, ultimately ending in offers from some. Look carefully at your final candidate’s portfolios of work, their array of products, and related reviews. You should also find as much information as possible about your targets on the Internet.

Hopefully, you will know people in common who can provide an additional level of reference, and even security, since both of your reputations are at greater risk if you have a broad or closely connected personal network. You may be able to call other clients who are listed as references, but keep in mind that some may be prone to give biased reviews because they may receive discounts or quid pro quo treatment or feel obligated to give a good reference due to personal relationships. Nevertheless, if you ask good questions and you are given objective references, then you can glean useful information for your purchasing and hiring needs.

During the vendor vetting process, there should be many opportunities for you to communicate with each prospective candidate. If his or her assistant is doing most of the e-mailing and phone discussions on behalf of your preferred principal, you can assume that is how the relationship would play out in the future. Also, if he or she is unprofessional, or doesn’t return your calls or e-mails as expected, then you can assume it would only get worse after you sign a service contract.

Typically, vendors are on their best behavior before a deal is consummated. So, if you don’t like the treatment you get when they are on their best behavior, then you will hate the treatment you get after you are under contract. It’s best to eliminate these sorts of people from your process before you become dependent on their services.

Once you have cleared out all the objectionable vendors, you will be lucky to meet your target of three good-faith offers from trustworthy candidates. At that point, you are also hoping or pushing for the offers to be comparable (apples to apples).

As you continue to review the proposed project’s documentation and your interactions with the vendors, you may be able to decide which ones you favor even prior to having thoroughly reviewed their pricing.

But if you are really comparing apples to apples, and all the vendors and offer formats are essentially the same, and even further, you equally like all the vendor interactions, then price and payment terms are all that matters. The bottom line is the bottom line if all offers provide the same quality for the same services. So if you like several of the vendors, and their offers are practically incomparable, then your decision will be harder to make.

In reality, hiring vendors is not so clear cut and not necessarily at your unilateral discretion. For example, if you live in the northeastern United States, you probably had to suffer from the notoriously hideous phone services of Verizon and their predecessors Bell Atlantic, Nynex, etc. since they are the monopoly providers in most areas.

Those businesses that absolutely depend on phone services to survive are in a pickle. They have to pay whatever outrageous charges the monopolistic providers throw at them, or they will lose their services and could go out of business. Moreover, they have to accept minimal and poor quality customer service since the incentive to provide quality services is eliminated in monopolistic enterprises.

The same issue exists with Comcast Cable Television, another example of terrible and traditionally monopolistic services in the northeastern US.

With no incentives to improve, monopoly providers can be expected to give consistently bad service. In these two cases, weak pseudo-competitors exist today, but they are still severely handicapped by legacy issues, such as being forced to lease their competitor’s ancient systems’ infrastructures at non-negotiable prices set by politically and financially influenced utility boards.

In many other cases, there are only a few products and service providers for the items you require or desire, so you are beholden to the limited market whether you like it or not. If you are uncomfortable with the corner of the market where you have been boxed in, your best bet is to try to break the popular paradigm. Mix up your marketplace by constantly finding and creating alternative products and services to differentiate yourself from your competitors. This fundamental business strategy could create extra profit margin for your business while baffling the competitors.

Fortunately, a high proportion of deals, whether large or small, only require you to review the pricing since you often know exactly what you want and have many commodity-like vendors from which to compare and select.

Once you have made a firm commitment in writing to your vendor of choice, you cannot gain any advantage by paying them late or withholding funds. You ultimately must pay your bills, so you might as well pay on time to avoid establishing two potentially fatal business sins: a bad reputation and bad credit.

Many people try to establish deal leverage or try to get an underhanded credit float by paying bills late. This approach will backfire, is a waste of time, and proves you are not paying attention to the critical tasks your time requires. There is no reason to upset vendors and force them to hold you in disdain for paying them late. If you need a loan, get one from a lender, or ask the vendor if they will provide special terms or financing.

As the leader of a company, you get to do all the hard work. Negotiating with vendors can be one of the most confusing tasks ahead of you because sometimes you don’t know what a fair price is, and you can’t tell if the person you are speaking to is being completely honest about all the details, or has kept any important information hidden.

Whether the spokesperson for the vendor is putting on an act or not, you might not understand why there is apparent disgust in his attitude if you reject his rate quote or overall offering. Would it be because his offer to you was truly fair in the first place, or because the salesperson is just pretending that you are being unreasonable? You must educate yourself on what price is fair before you come to the negotiating table in case the seller is trying to unreasonably “squeeze” you.

Any uneducated demands you make to the vendor are likely to be unfair in the first place. If there were a set market price, as in a commodities market, there would be practically nothing to negotiate.

But just because you find yourself negotiating a deal, doesn’t necessarily mean there is an easy way to establish a fair contract price. In many cases, there is no correct price, and any negotiating position you take can readily be questioned by the other party. So if the other party produces apparent facts to justify his pricing, make sure that his information is 100% true, and the methodology and “facts” he used to justify his pricing can be well-substantiated before you rely on any of it for your own decision-making. In any case, make sure you have solid facts and can logically explain why the price and deal terms you wish to offer are fair.

Purchasing services is much like building a collection of your favorite CDs from scratch. You should take a broad look at the musical offerings from every genre that suits your interests and denote the discs you think are most promising.

Maybe you note bands because you’ve heard them play, or because they are from a regional hotbed of music, or because they are known as a musical pioneer in their field.

Next, you can take a sampling of the music available from those artists by listening to sound clips. As you listen, you can jot down the names, songs, and albums that you like most and remove any of the selections from contention that you don’t like.

After final review and contemplation, you can purchase your final selections, and then the next thing you know, you have new music to enjoy based on a simple and sound vetting process, which might give you ideas for yet another set of music purchases.

When you buy services for your company, you should essentially go through that same process. You scan the names and basic information of potential service providers who might meet your needs based on references, reputation, or research. You then select the ones that look most promising based on your prearranged criteria. From there, conduct as much due diligence on each selection as possible, including apples-to-apples price comparisons.

Ultimately, you should do a thorough job of reviewing all pertinent options and then make rational, proactive, expeditious purchasing decisions.

Once you have easy access to product and service information and notes from a multitude of sources, you need to cleanse and think about the data on hand. Ultimately, you can make decisions and take bids from vendors who can fill in pieces of your business plan.

If you have three options as mentioned, you will find that you are buffered because if one doesn’t work out for any reason, which is often the case, there are two others from which you can choose. With three options in your pocket, you can market your own services more aggressively knowing you have support, and use this leverage to gently pressure the service providers to provide what you need, when you need it, at a fair price.

Next Section >