"A cynic is a man who knows the price of everything, and the value of nothing." - Oscar Wilde, Irish Playwright
Although he probably didn't mean to — okay, definitely didn't mean to — Oscar easily could have been talking about the way many companies look at purchasing class "c" components, or working with VMI (Vendor Managed Inventory) suppliers.
Granted, class "c" components and Vendor Managed Inventory aren't the sexiest things around. After all, class "c" components such as nuts, bolts, washers, and fasteners are just nickel and dime parts. Unless you go through a few thousand of them a day. Then we're talking serious money. That's why it's so important that we get beyond merely thinking of their acquisition cost and instead concentrate of total value.
Now, this can be challenging on several fronts. In an article entitled Changing the Customer Conversation to Total Cost, Paul Reilly stated:
Humans are Hardwired for Instant Gratification. That's why a cheap initial price is so tempting to most of us. It's tangible, it's obvious, and it's immediate.
Proof vs. An Educated Guess. The price on a proposal is solid proof, exact and tangible. Total value is an educated guess that is harder to prove. Most of us would agree that total cost of ownership is higher than acquisition price, but we don't know exactly what it is. Since that incalculable cost doesn't exist, how could a salesperson reduce it?
Short-Term vs. Long-Term. Organizations are run by instant-gratification-seeking individuals. The management guru, Gary Hamel, said that most strategies focus on short-term challenges versus long-term opportunities. It follows that short-term organizations rely on short-term criteria to make decision.
Familiar Costs vs. Unfamiliar Costs. Someone purchasing a certain amount of class "c" components certainly is aware of the purchase price, but do they understand the cradle-to-grave cost? Again, the acquisition price and total value are dramatically different.
To overcome these challenges we need to change the conversation. Here are a few suggestions:
Total Benefit of Ownership. To make total value more meaningful, think of it as the total benefit. In Walter Mischel's classic marshmallow experiment, children were offered one marshmallow now or two marshmallows in fifteen minutes. Most choose the single marshmallow. To resist the single marshmallow (price), focus on the sweetness of the total benefit.
For instance, class "c" component supplier "A" might have a great price on custom fasteners or engineered fasteners. But supplier "B" might be a Vendor Managed Inventory specialist and have included in their price management inventory control — so your supply doesn't run out at exactly the wrong time; and, you don't pay for what you don't need. Supplier "B" might also include assembly packaging; and manufacturing to lineside point-of-use-part work cells.
When looking at the total benefit compared to the initial total cost, the picture changes dramatically. Supplier "B", while more to begin with, ends up winning in a landslide.
Use Proof. The total value has to be tangible. To make it tangible, you'll want proof. Any educated claim should be supported with proof. Some organizations use spreadsheets and total cost calculators. Others use case studies highlighting the total cost and total benefit of their solution. In either case, be sure the numbers make sense and are realistic. You'll want the truth. You'll value the proof.
Become Educated. Your sales rep should educate you on any unfamiliar costs and their impact. Your rep can educate and make claims, but proof is more compelling. To prove a claim, involve other people impacted by this decision. Ask them to help you determine total value. When a salesperson expresses an opinion, it's a claim. When a fellow team member expresses an opinion, it's proof.
To get beyond price, you have to change the conversation. At the next meeting with your sales rep, walk them through the cradle-to-grave experience of the purchase. When they ask about a cost variable, elaborate further. The more you elaborate, the more real the cost becomes.
Remember to get substantiation of any claim with proof. You'll want case studies and total cost calculators. Collaborate with your rep and help determine the total value. Be part of the process. When you participate, you'll often provide yourself with proof. And proof is much more valuable than an opinion.