The world we live in thinks “low bid” instead of “best value.” Though many of us fight against this archaic logic every day as we try to sell our wares, the unscrupulous contractor is willing to cut corners when they are acting as the buyer or as the seller. The lure of the dark side is strong when price is the prime decision tool and the value equation is cast into the abyss. These moments can sometimes find us at our worst, willing to create a Frankenstein monster of a bid by “cherry-picking” the best pieces from various vendor quotations.
The Changing Vendor Dynamic
As economic competitiveness tightens, our own businesses feel the pressure. The normal flight-to-safety is to short-term thinking. We may be willing to set aside profitability just to “keep our people working” or even to sell below market price “to buy some time to work it all out.” It is in these moments that we are susceptible to destroying hard-built relationships with trusted vendors in search of the one-time best deal.
For larger bids or orders, it has been commonplace for years to solicit quotations from three to five of our most trusted vendors. These are distributors with which we have worked before and from which we have received good product and service. Years ago, vendors priced quotations per piece. Some contractors would comb through each quotation and order the individual items from each vendor with the best price on that item, a method known as cherry-picking the quotations.
While it took some time, the vendor industry eventually changed the way in which they presented their pricing. Today, their deliverables are quotations, usually broken into the larger category areas. Most vendors provide a lump sum price on their quotation for the entire order. If a contractor wants them to compete only in one category, ‘roofing’ for example, most vendors will happily quote just that category.
It has become much more difficult to cherry-pick orders with this newer vendor pricing model; yet, some short-term thinking contractors still attempt to manipulate the system. Instead of considering the long-term benefits of strong vendor relationships, the unscrupulous contractor thinks only of today and cares not of whom or what relationships they burn to earn today’s profit.
From the Vendor’s Perspective
Vendors understand the industry in which they work. They, like you, know the name of the game is “low bid.” When they assemble their quotation they have worked to give your firm the very best price they can according to their corporate bidding systems and profitability models. Each vendor will have sweet spots in different categories, which is what creates the situation in the first place.
One vendor may have over-bought wire when copper was trading at its recent low. Another may have a warehouse full of siding they acquired when buying out a competitor that is the perfect alternate for your quotation. Yet another vendor may have recently had a good run with windows granting them special volume pricing from the manufacturer. In each situation, the vendor cuts their profit margin to the bone in their sweet spot area to positively affect the overall quotation price in hopes of earning your business for the entire order or, at least, the entire category.
The Short-Cut is Less Travelled for a Reason
It is easy to forget the value equation or the positive experiences associated with a vendor relationship when we are in search of the best price. When time or money is in short supply, it is human nature to search for a short-cut; that is, some temporary solution outside the normal course of business that will quickly exit you from the current predicament. Short-cuts always have consequences. They are more dangerous than the well-travelled path; so, we must expect to suffer injuries to our firm because of our choice to take the short-cut. In this case, the slashes and bruises are to our firm’s reputation.
When an unscrupulous contractor cherry-picks quotations, they remove the vendors’ ability to be profitable. Business must always be win-win-win with the end client winning, your firm winning, and your vendors winning. When it is not, one or more of the parties is miserable which may lead to them terminating the business relationship. Or, they will adjust their prices upwards on future quotations, pricing your requests out of the market.
Profitability Must be Sustainable
Vendors reward loyalty with loyalty. Sometimes this translates into offering you a sole-source lead that they could have given to one of your competitors. Other times it takes the form of a killer price on a quotation. Most of the time, the loyalty returned comes in the form of service. The CEO of a vendor to which you have been loyal will get up from the dinner table, leave his wife and kids in the middle of the evening, and drive across town in an urgent situation to save the job for you. Should you expect that kind of super-service from a vendor to which you give the order only when their price is lowest? How much is that type of service worth to you in the greatest time of need?
You must stay competitive. In this economic environment, as in most, that comes down to price. Be frugal. Watch the pennies and the dollars will take care of themselves. Just do not sacrifice long-built relationships and downplay service to save a few dollars. Often, the lowest price is the lowest value. Offer best value to your clients and accept nothing less than best value from your vendors.