Everyone knows how to negotiate based on price. Dollars and cents are easy to compare, but how does one measure the value you receive at that particular price? This abstract concept has long been pushed as a best practice but can be vague and time consuming to measure.
The terms "Total Cost of Ownership" and "best value" are commonly heard throughout the industry, but full adoption of these concepts has been limited. The payback isn't as immediate as "piece price," for example, and it's difficult to justify a supplier switch by telling management, "Don't worry, it will pay off eventually."
But this mindset is changing. Our 2015 Purchasing and Manufacturing Survey results point to manufacturers seeing the larger picture as they hold suppliers as accountable partners. In times of uncertainty, companies need to know they can rely on their vendors to support their daily operations.
There are also many other seemingly invisible expenses that companies don't take into consideration in the heart of their negotiations. For example, companies are incurring daily costs if they're holding their raw materials inventory in-house instead of with their partners. In the whitepaper available here, SKF discusses items to examine to understand your supplier's approach and decipher exactly what the costs of doing business are. The paper also helps define the true difference between price savings and cost savings.
Todd Snelgrove will be at Prime Advantage's Fall Conference discussing this topic with our Members. He is an expert on Total Cost of Ownership and has over 10 years of experience working with teams to understand and calculate true prices.Be on the lookout for part two of this blog which will be available in late October.