The Challenge to Buyers: Faster, Better, Cheaper

The last couple of years have seen certain market segments embark on a roller coaster ride as commodity prices fluctuate wildly. The effects are felt throughout the global economy and as business seeks to regain some internal control over their margins, the pressure is on for those in Supply Management to achieve cost savings is greater than ever.

There is an old saying in Procurement:

Price, Quality or Delivery: I can do any two of the three.

This article will take a closer look at each of the three elements to see if the sequence of priority can fit in different industries better than others. The listings are in order of a company’s priority with the first element listed as the first or highest priority, then the next and finally the element with the least priority of the three. As a Buyer you might fall into any of the 6 models.

Price, Delivery, Quality

A few decades ago, companies shifted to having “Cheaper” as the number one priority. One result was the move towards offshoring and this necessitated having longer, more complex supply pipelines where logistics became increasingly important to the materials management function. Combine this with the manufacturers moving to Just in Time (JIT) and the timing of material receiving gave rise to the logistics function in factories.

Another learning curve that took place when offshoring became popular was that quality started to suffer, primarily because the quality standards were insufficiently defined and offshore suppliers had to learn what was acceptable to their new customers. Many suppliers promised the moon but were unable to deliver defect free products in quantity. As the same time pioneers such as Deming were developing quality methodologies such as 6 Sigma that revolutionized the quantification and measurement of product variation. The whole QA/QC industry came of age in this period.

Price, Quality, Delivery

The prepared food industry often uses this model when they develop products that are shelf stable or frozen for grocery stores. Canned or frozen vegetables or fish can be processed/frozen when harvested and still survive an extended supply chain to your pantry or freezer, even though the journey can take weeks or months.

Quality, Delivery, Price

Putting quality at the forefront is less common in general industry but does take place in certain markets. Great examples of this mindset include aerospace and the military. When lives are on the line in an airliner or on a battlefield, having the cheapest product can have deadly consequences. When I fly I want to know that the tires on the aircraft are the best available, not some old, patched up bald things from the back forty, don’t you? Give me a rifle on a battlefield and I want to be sure the bullets work when I pull the trigger. Buying the cheapest aircraft doesn’t fill me with confidence in either case, civil or military.

Quality, Price, Delivery

This is a tougher nut to envision for some people. Think of the computer hardware industry as an example where economies of scale have reduced the price over the years while the qualities and functionality has increased exponentially. This is traditionally a slower process while market segments are born and grow to the point where economies of scale can make a difference. My first PC cost me $3000 (clone 286) and now a full function laptop is under $500.

A more current example is the emerging Green Energy industry with wind turbines and solar technologies rapidly gaining momentum as consumers move toward less reliance on fossil fuels.

Delivery, Quality, Price

When the time-to-market is important, speed of manufacturing is paramount. Think about the cellphone industry and how often new models are introduced to consumers. Over time a sense of expectation from the consumer demands a scheduled release of new models. Another example of this is the automotive industry where new models are introduced every year in order to entice customers who have been conditioned to expect the “new thing” and even jostle in lineups just to be the first to have the new I-Phone or Tesla. Has anyone priced out a new phone lately, do you really believe that an I-Phone is actually worth $700-800? It probably cost Apple a few dollars to build each handset.

Delivery, Price, Quality

Instant gratification has become ingrained in our populations and today people are looking for instant results. This usually comes at a price. The music industry used to produce records, then 8-Tracks, cassettes. CDs and DVDs. In all of these cases there is a manufacturing cost. Now that there are streaming websites where (for a fee) users can listen to music and websites (e.g. I-Tunes) where customers can buy individual songs to download, the music “Industry” is changing. Artists are self-producing material and dealing directly with web services like YouTube, Spotify, Jango and others to market their songs. Mainstream music giants are rapidly losing customers to these other venues but with the influx of new artists, many are appealing to smaller and smaller niche audiences.

Another market segment where this model works is the fresh food industry where the journey from farm to table is paramount as quality suffers the longer the product is in transit.

Buyer Beware

As a Buyer it is critical that you understand which priority model applies to your situation. Rarely will your bosses come up to you with a mantra that is fixed in stone. Usually the priorities change as the business reacts to new market conditions. Perhaps a year ago, delivery was the prime determinate of who got your Purchase Order and now the focus is on the lowest cost. Of course, the end user’s expectations may still be focused on delivery and it is up to you to balance the expectations of users and management. Sometimes this will be a very thin tightrope you will need to walk and sometimes you can’t win without disappointing someone.

The trick is to keep in mind that you don’t set these priorities. Your responsibility is to make sure that your thinking is in line with management expectations and when those change, it isn’t personal, just business following normal business cycles.