Price vs. Value

by Jamie Bultemeier

 

Selecting the right supplier is a key business decision, regardless of the industry. From major manufacturers to the agricultural producer, supplier selection is a key aspect of running a successful business, and with the current tight margins in agriculture, selecting a quality supplier is especially crucial. Lower revenues often make the lowest cost supplier look very enticing, but before making the purchasing decision, successful business managers must carefully weigh all options to decide what is the best option for his or her business.

The adage of “You get what you pay for” still holds true. We need to keep in mind the magnitude of the supplier decision and the impact to our business. There are a number of factors beyond the price of the product or service we need to consider, such as:

 

• Does the supplier’s business reflect your own? If you are selling on value and only look for the lowest cost supplier, this disconnect will be seen by your customer as some point and will diminish your value position.

 

• What is the reputation of this supplier? If the reputation of the supplier is questionable, it can reflect on the reputation of your business.

 

• What is the quality of the product? Usually if the supplier is significantly cheaper than the rest, there is a reason, and it may negatively impact your customer.

 

• Is the product or service consistent? In agriculture, we often compare products or values from year to year. If the results are inconsistent, it may result in your customers questioning your products or services.

 

• What if you have a problem with the product or service or need additional support? A good supplier is easy to contact and is responsive to your needs. Many low-cost suppliers cut this overhead first. If you need to get answers for your customer and you are not getting answers yourself, it is your customer (and reputation) at risk, not theirs.

 

• Is this supplier flexible? Many low-cost suppliers expect business to be conducted in a specific way, and this may not be compatible with your business and lead to additional costs on your end.

 

 

• Is the supplier offering something for “free”? In business, all expenses have to be absorbed into the price of the product or service, nothing is free. If not reflected directly in the price of the good or service, then it must be accounted for somewhere.

 

• How fast can a supplier turn your request into a final deliverable product? If the product is sitting in a warehouse and simply needs shipped, this is not an issue. If the supplier has to build the product or perform a task, you need to know that the product or service will be delivered in a timely (and consistent) fashion.

 

• How big of an impact does this product or service have on my profitability? If the potential savings of a supplier’s goods is a small portion of your total cost, the price should have a smaller impact on your discussion. If the product or service has a large impact on either your, or your customers’ profitability, supplier price should be a lesser part of the decision.

 

As a farmer every year I make a choice on not only what products I want to buy, but also who I want to buy those products from. I can look at a bag of seed as a basic input commodity and look for the cheapest price, or I can choose to realize that there are major differences in those products. Those differences, whether it be in genetics, versatility of the product line, research, and support after the sale from someone that is genuinely interested in my success, all will help me to reach my goals and to make me (and them) more profitable. Choosing a supplier that helps you generate greater revenues is usually more profitable than simply choosing the one offering the lowest cost.