[M.D. Holloway]

84porsche:
I am responding becuase this is my passion! Keep in mind, this is my 778 post - read the 777 thread and you will understand that I should have quit at 777 to preserve the glory - but alas, I must respond...it is my undoing.

Selecting products and vendors on price is never a good idea for several reasons. If you think of it like this, how many things do you buy on price alone? Orange Juice? Tee Shirts? Cookies? Cars? Houses? Nope, maybe gas, but I bet sometimes when you buy the cheapest gas you may wonder if it is any good or did they water it down (and yes, some jobbers do this!). My point is this. You rarely if ever buy anything on price alone, so why the heck would you (or purchasing) consider buying anything related to your business based on price? I will tell you why, becuase many times the only gauge business has is the diect cost pooll or the apparent bottom line. Job goes to the lowest bidder. Many folks do know know how to qualify performance and justify the higher priced item becuase they have never been taught how. Well, my brotha, help is here.

First and far most - what I am sharing with you is information I would normally charge for. I will leave out the details but will share the over all concepts. My billable rate is $700/hr plus expenses. Your a pelican brotha so it is gratas.

Here is what you have to do. I will use a simple example but the concept can be translated into anything - goods or services.
Lets take a silly example such as light bulbs. Every plant uses them, they buy many a year and typically they go with the cheapest. But that is not the smartest way becuase they may be spend much more in the long (or even short) run. So, how do you buy light bulbs for your plant?


Step 1) ID exactly what you need in product performance detail. That means the amps, size, durability, life, are a few examples but those are considered hard facts that can be easily quantified with product performance data. This may seem striaght forward but it is not. You have to establish what is critical to the quality (CTQ) and set up a quality function deployment (QFD). In this step you will need to identify the way in which the performance criteria is measured. ASTM is a great beginning source for this. They have been around for 100+ years and are in the business of setting up all sorts for testing and performance measurements. Check out their website at www . ASTM . org (maybe .com). Painstaken but incredibly valuable.

Step 2) Determine the value requirements needed for ultimate performance as it relates to your application. For instance, our light bulb example, prehaps one of the reasons why you buy so many light bulbs is beucase they tend to break easy when in transist or when being installed. This would mean that durablity is an important criteria. The best way to understand this is to track why these light bulbs are failing (burn out, break, short out). This will require a Failure Mode Effect Analysis (FMEA) to be carried out. Easy enough to do, just have to get the info from the guys that repalcing them, chart it up, identify the "signficant few" occurences.

Step 3) ID the non-direct cost pool influeneces, this has to do with things that are non-performanc product related such as does the light bulbs get shipped on time? does the vendor allow for on-line purchasing? Does the vendor allow for consigment purchasing? Do they charge for shipping? What are the minimums? What are the return policies? Does the vendor fix a price for a certain time frame? All these thisngs ahve to understood before the next step is taken. Also included are understanding what "Value Added Contributions" the vendor provides. If it is a light bulb, prehaps the vendor provides energy audits?

Step 4) Establish a Purchasing Specifacation: This is where you take all the info from the previous steps and lay them out in a document that has minimum requirments. Make the PS available for bidders and wait.

Step 5) When the PS due date is up, chart the performance criteria and non-direct cost pool influenes (these you may have to establish an internal rating system).

Step 6) Chart it up - analysis is required.

You will notice that the price never enters the picture - they will provide this and you should also have this charted but this will also have to be understood. Why spend 50% less on a light bulb that will last 60% less and have 25% less durability?

Takes work, many companies don't do this, they are too busy stepping on the ants as the elephants are coming over the wall!

If you need me, let me know, I can provide an atactive rate and will only accept compensation upon real savings and value recognition!

Step 7) Select the vendor that makes the most compelling argument.