In most of my public speaking appearances, I speak to groups
of corporate purchasers.  However, I recently had the 
enriching opportunity of speaking to a group of sales 
professionals.  

I asked them to tell me about the experiences they've had 
with purchasing groups that have frustrated them the most.  
I got some interesting responses!

One phrase that was repeated often was, "It's all about 
price!"  These sellers felt that many purchasers do not seek
the supplier that will best serve their organization, but 
instead always seek the cheapest supplier.

I assured them that this was not the case in most 
progressive purchasing and supply management departments.  
However, that is not to say that their perspective did not 
have merit.  It does.

I summed up why they had the experiences that they had in 
this blurb: "It all comes down to what can be quantified in 
financial terms. When price is the only thing that appears 
to be quantifiable then, yes, it does all come down to 
price. However, when paying a higher price can yield a 
quantifiable return (e.g., minimizations of other costs), a 
well-trained purchaser will make the decision that has the 
most favorable net impact on the bottom line."

There are many other aspects of doing business that affect 
the bottom line.  Are you, as a seller, considering them in
the same way that your potential customers are?
  
If not, consider evaluating how these costs of doing 
business with you differ from the costs a customer may incur
when doing business with a competing supplier:

- The cost of acquiring a product or service
- The cost of using a product or service
- The cost of supporting a product or service
- The cost of maintaining a product or service
- The cost of disposing of a product or service
- The cost of poor performance

Just to illustrate the detailed analysis that a corporate 
buyer may do, I'll provide the steps that he or she would 
follow to take into account the estimated cost of a seller's 
poor performance.  This approach is most commonly used by
large corporations who are doing business with two or more 
competing suppliers and wish to consolidate their supply base.  

Here's their 6-step process…

1.  They define "events" that constitute poor service, poor 
    delivery, and poor quality.  For example, a poor quality 
    event may be receiving an incorrect invoice.

2.  For each event, they determine its average cost to their
    organization.  For example, an incorrect invoice may 
    require their accounts payable and purchasing staff to 
    dedicate 3 man-hours at a rate of $30 per hour to resolve 
    the problem.  Thus, the average cost is $90.  They apply 
    the same average event cost to all suppliers.

3.  For each event, they determine the percentage rate of 
    occurrence using historical information.  For example, if 
    10 of the last 1,000 invoices that a supplier provided 
    were inaccurate, the percentage rate of occurrence for 
    that supplier is 1%. They express the rate of occurrence 
    in a decimal format (e.g., 0.01).  Each supplier will have
    a different rate.

4.  For each event, they determine the number of opportunities
    for the event to occur.  If suppliers will invoice them 
    weekly over a two-year deal, there will be 104 
    opportunities for an event.  The number of opportunities 
    will be the same for each supplier.

5.  To estimate the cost of poor performance for each event, 
    they multiply these three things together:  the number of 
    opportunities, the rate of occurrence, and the average 
    cost per occurrence.  Cost of poor performance per event 
    will differ by supplier. 

6.  For each supplier, they add the cost of poor performance 
    per event for all events to the corresponding supplier's 
    price. The supplier with the lowest total cost after 
    factoring in the cost of poor performance will generally 
    be the ideal choice, considering price and performance.

So, you can see, it is not all about price in all situations.

Knowing how the buyer will evaluate your proposal is a big 
advantage in successfully selling to large companies.  Helping
the buyer understand how your company minimizes the total 
cost of doing business is the key to getting your proposal 
evaluated favorably by today's sharp purchasing professionals. 

This article was written by Charles Dominick, C.P.M., SPSM.  
Mr. Dominick is the president of Next Level Purchasing, Inc., 
a company dedicating to helping purchasing professionals have 
successful careers.  Next Level Purchasing can be found on the 
Web at http://www.NextLevelPurchasing.com