When paying less can cost you more !

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16th May 2011

Very few, if any enlightened Buyers or Purchase Manager's are likely to place orders solely on price, especially in the competitive area of sub-contract machining. Quality, lead time and confidence in the supplier are all significant considerations that influence that all important decision. However, sometimes those same purchasers can be tempted to turn away from the existing supply chain when a new suppliers is apparently able to undercut those established sources. It is then that the hidden benefits of a true "preferred supplier" need to be evaluated and an indirect saving associated to this. An equivalent amount should then be added as an additional cost from the new supplier to give a truly accurate price comparison. Identifying these benefits and apportioning a realistic value to them is the key to achieving a genuine like for like cost analysis. Depending on the relationship there can be many area's to consider but three primary sources normally exist comprising, administration, support & reliance. Administration; simplified enquiry and order placement, reduced documentation and correspondence with established lines of communication and multiple points of contact. Support; an existing supplier will need far less, having already established proven technical ability, quality standards and a clear understanding of the contractors process and procedure needs. Reliance; a reliable supplier can provide the means to lower the working capital needed by reducing or eliminating stock holdings; improve cash flow by shortening the gap between payments and receipts and contribute positively to product development and ongoing cost reductions. The actual amount this can be worth will vary by the type and complexity of the work undertaken but is not insignificant and can be calculated with a little effort. If you measure the real value, not just the piece part price, when assessing your suppliers quotations then Monolution feel sure that not only are they competitive but you may actually find they prove to be cheaper overall despite perhaps the slightly higher headline price.

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