If the price is your only game, it’s a shame. Here's why.
Do you purchase aircraft material on a daily basis?
If so, you may have a habit costing you hundreds of hours of your own personal time and thousands of your operations dollars every single year.
You become so fixated on the cheapest price that you’ll do anything to find it. You’ll scour Google, all of the listing databases, send out mass emails to 200 suppliers, and you’ll watch the quotes come in, one by one.
Trickle in. Trickle out.
I’ve been there.
I’ve personally bought tens of thousands of parts before I became CEO of Skylink. You get caught between the mousetrap of the cheapest price, on-time delivery, good quality, and great customer support.
Often, the cheapest price will impact one of these areas.
Let’s take a more in-depth look at the three reasons why a cheap price can negatively impact you and your operation and what’s a better financial metric to track.
There’s a poor correlation between the cheapest price and the best customer service
You’ve been there. Your vendor teased you with a low price. Dangling the price in front of you like a carrot. You’re so close. You nibble the carrot. You then decide to take a chomp.
You cut the PO, and you feel great. Yah!
The vendor acknowledges the order, and that’s the last you hear from them.
They don’t return your emails. Your calls. Your demands.
You try to be patient until the day you have to cancel and find a more reliable solution.
Price matters, but “cheap” does not.
If you go for cheap, your vendor has no margin to play with. No margin to invest in reducing your total cost and giving you the best customer service available.
Which in the end, will net you more savings. And your sanity.
It’s certain you’ll run into a lot of lead time issues when chasing cheap material.
There’s a lot of reasons why cheap will impact your lead times. One reason is a lot of units aren't ready to go.
It’s a weak inventory strategy to invest in repaired material and generate cheap pricing. That’s a losing business model. Inventory is costly.
When you go cheap, you’ll see longer lead times. You’ll also see a correlation between more problems and cancellations.
We go back to margin, but there’s no margin to help resolve the problem, so now the problem is for you to fix.
Customer service will be more robotic, or non existent
Think back to the cheapest price you got recently. How was the customer service? Probably pretty poor.
You’ll see this a lot with large billion dollar distributors. They focus a ton on lowering their per unit price to increase revenue. A great strategy for them. They care a TON about volume.
I spend roughly $1,000,000 a year with them, and we can barely get them to visit us. And he’s local!
You’ll have to call or email their customer support lines and deal with someone who gets bombarded by emails and calls. A few hundred a day.
They’re frustrated. Tired. And often annoyed.
You’re not going to get the support you deserve. Unless you don’t care about that or you spend millions of dollars with them, which isn’t the majority.
This may be advisable as the per unit price is low, but you’ll pay for it in your total material costs.
You’ll avoid this mess by focusing on total cost more than just price
Total cost is a complicated subject. Especially after it arrives at your facility. Here are just a few costs you encounter after you receive your material…
- Quality control labor costs
- Receiving labor costs
- Inventory insurance costs
- Inventory security costs
- Depreciation costs
- Error costs
- Lost or stolen material costs
- Damage costs
And the list goes on.
A lot of that, for you, is beyond your control. What you can control is everything prior. During sourcing, processing, and chasing your orders
A great example is this…
Let’s say you have a unit that has a fair market value of $10,000. You then find a random vendor who quotes you $9,000. You get excited and want to cut the order. But your preferred, trusted material adviser quotes you $10,000. A fair price.
With your preferred vendor, they also quote you five other units so that you can consolidate your order and shipping. If you ordered all of this one-by-one, it would cost you over $2,000 in processing and shipping costs. And let’s not forget the risk of issues.
In the end, your preferred vendor saved you more than the low price by consolidating, being reliable, having a healthy credit line, and the opportunity to be covered by a 24/7 dedicated account management team.
I would say, this is so much more important than price. Total cost.
As you go through your day today, look at the reason why purchasers fail, they focus solely on price and not total cost.
Start focusing on total cost and watch your own productivity skyrocket but also the positive impact it’ll have on your operation.
Thanks for reading! Be safe. Be humble. Be you!