Motto: “Procurement isn’t only about savings.” — Jan Hirsch

Honzík rushed to his boss with his latest triumph. He’d managed to squeeze a 20% discount out of the grinder supplier—plus a volume discount for orders over 20 units! And they say he can’t run tenders!

Sure, the chase for savings — and even setting rewards and bonuses for hitting them — has its place when we’re putting procurement in order. But a supposed 40% saving on a given raw material looks more like close cooperation with the police. And you can’t keep cutting forever; savings have a floor (and then there go our bonuses).

The little animals know more factors come into play than just price. One interesting one is LCC (life-cycle cost)—the question of whether, in repeated repairs and maintenance of a machine or device, we won’t end up paying more than we “saved.” We usually don’t track this closely (it’s laborious). We can also use references—how satisfied others are with the product. Some people simply make cheap junk, and others make pricier grinders that last. Hard to explain to the boss.

Honzík knows there are several parameters we can use to set priorities when selecting a supplier. We do it by assigning a weight to each parameter in the tender—that is, a coefficient that raises (or lowers) its importance. It’s like tuning a guitar: you tune it to the harmony you want.

So, what key will our little animals tune to? Here are a few options:

• Payment terms and creditworthiness: It’s not only one-off buys. There are investment projects that run longer, and it pays to have the financing clear.
• Quality: If a delivery contains hundreds of thousands of components (little doohickeys), you won’t lodge claims one by one. You need the supplier to guarantee a certain quality level (ppm, per mille, percentage).
• Flexibility: For example, the ability to deliver the contracted goods not to Hamburg on Wednesday but to Copenhagen on Friday.
• Response time: For some items you need to know how long after ordering they will be delivered.
• Service and post-warranty service: You need the supplier to look after you even once the warranty ends.
• Technical solution: By locking in a specific technical solution, you may be closing the door to future changes.
• Innovation: A parameter Honzík loves—always and under all circumstances you should require the supplier to bring something new.

The animals may still pretend that price decides, but now they’ll know the story is more complicated.