Do you purchase aircraft material like it was 1995?
You throw out an offer ($$$), cross your fingers, and hope for the best.
You say to yourself, I know it’s 5% of the quoted price but let’s give it a good ‘ole try.
And try you do...
“Amanda, you quoted $10,000, but I can buy it for $5,000. Can you make it work?”
And the cycle repeats itself, on every part, on every RFQ. You toss the bait in the water and wait for a shark to bite.
If the sharks doesn’t bite, you keep fishing.
The price theory
Price is important.
It sets the standard. A benchmark.
But it’s the cost that’s going to bite you. Chomp, chomp.
Every time you process an order, you add $250 to your companies operating cost...for each PO.
Add up all the POs, plus your shipping cost and you chewed through a ton of costs chasing a price.
Hopefully, the price search reduced your cost but often times, it’s on the opposite that happends.
A great example of this is in a recent conversation I had with an airline purchaser.
The name will remain anonymous to avoid public scrutiny.
I said, “I’m 10% over fair market value for 10 components, but with our systematic approach to drive down total material costs, I can save you 30% overall. Your ROI is 20%, would you like to buy those components from me?"
He said no. No to a 20% ROI.
Can you believe it? Crazy.
Here's an article that says you should screen procurement candidates based on the ability to calculate % to change.
However, it's much more important to see how much total cost is being removed and what efficiencies are being created in order to continue to drive down total material cost.
This is a fundamental flaw in procurement.
Upgrade your purchasing skills
In order for you to be an effective buyer, you have to act like one. Chasing only the lowest hanging fruit with the cheapest price seems logical, but it’s not.
Here are some critical ways to up your skills:
Start with the end in mind. You should know how your purchasing decision will impact costs from the time of purchase to the time it’s put on a shelf...or aircraft.
Look for ways to remove cost from the supply chain. Can you order 10 parts from 1 trusted material advisor? Can you reduce the occurrence of order issues?
Don’t negotiate everything.
Do negotiate if you have a benchmark. Let’s say your preferred material partner is high on 2 out of the 10 parts, have a discussion with them.
When you do negotiate, compare the cost of your decision if the other party does not budge. Can you still reduce cost somewhere?
PLEASE do not ship o-rings from 5 different places.
Have a meeting with your preferred material partner, discuss the ways you can leverage the items you need today, with items you will need for other strategic projects.
Do not buy just on price. Review price and then understand how each decision will impact overall cost.
Effective buyers don’t bully their suppliers. They don’t yell and scream. They negotiate win/win scenarios. They build long-term partnerships.
When you’re fun to work with, you’ll get a lot more from your sales counterpart.
Start today. Be more effective. Pay attention to your total cost, and be a much better purchaser.
P.S. We’re thinking about creating a purchasing course. Are you interested? Click button below...