Price vs. Total Cost

In the May edition of Purchasing magazine there is a study of how buyers rated distributor's performance in 2005. The study reports an interesting correlation between price and the performance rating.

From the article: "Buyers who typically place orders with suppliers based on lowest price are less likely to give distributor suppliers good grades for performance in the past 12 months. Those who negotiate competitive prices and consider total cost when entering into an agreement with a distributor may view the suppliers in a different light."

The data in the study shows that Quality and Availability take precedence over price in evaluating distributor's overall rating. The weight of Total Cost has risen significantly while the weighting on Price, Service, Technical Assistance, Reputation and Inventory Carried have all gone down.

Buy smart, not cheap; sell on total cost! Negotiate the best agreement for both parties in the long term!

Jim Sauerwein