The world we live in thinks “low bargain” instead of “best value.” Although many of us battle this archaic logic every day when trying to sell our products, the unscrupulous contractor is willing to cut corners when acting as buyer or seller. The allure of the dark side is strong when price is the primary decision tool and the value equation is thrown into the abyss. These times can sometimes find us at our worst, willing to create a Frankenstein monster of a deal by “handpicking” the best pieces from quotes from various vendors.

The Changing Provider Dynamics

As economic competitiveness hardens, our own businesses are feeling the pinch. The normal flight to safety is to think short term. We may be willing to give up profitability just to “keep our people working” or even sell below market price “to buy some time to figure it all out.” It is in these moments when we are susceptible to destroying solid relationships with trusted suppliers in search of the best unique offer.

For larger bids or orders, it has been common for years to request quotes from three to five of our most trusted suppliers. They are distributors with whom we have worked before and from whom we have received good product and service. Years ago, sellers quoted prices by the piece. Some contractors would review each quote and order the individual items from each supplier with the best price on that item, a method known as quote picking.

Although it took some time, the supplier industry finally changed the way they presented their prices. Today, your deliverables are quotes, usually divided into larger category areas. Most vendors provide a lump sum price in their quote for the entire order. If a contractor wants you to compete in only one category, say ‘roofing’, most vendors will be happy to quote just that category.

It has become much more difficult to select orders with this new vendor pricing model; however, some short-term thinking contractors still try to rig the system. Instead of considering the long-term benefits of strong supplier relationships, the unscrupulous contractor thinks only of today and doesn’t care who or what relationships he burns to get today’s profits.

From the seller’s perspective

Suppliers understand the industry in which they work. They, like you, know that “low bid” is the name of the game. When they put together your quote, they have worked to give your company the best possible price in accordance with their corporate bidding systems and profitability models. Each provider will have hot spots in different categories, which is what creates the situation in the first place.

A supplier may have overbought wire when copper was trading at its recent low. Another may have a warehouse full of siding that he acquired by buying from a competitor that is the perfect fit for his listing. Another supplier may have recently had a good run with windows by giving them special manufacturer volume pricing. In each situation, the supplier reduces their profit margin to the minimum in their sweet spot area to positively affect the overall listing price in hopes of winning your business for the entire order, or at least the entire category.

The shortcut is less traveled for a reason

It’s easy to forget the value equation or the positive experiences associated with a supplier relationship when looking for the best price. When time or money is tight, it’s human nature to look for a shortcut; that is, some temporary solution outside the normal course of business that will quickly get you out of the current situation. Shortcuts always have consequences. They are more dangerous than the well-trodden path; therefore, we should expect to suffer damage to our business from our choice to take the shortcut. In this case, the cuts and bruises are for the reputation of our firm.

When an unscrupulous contractor selects quotes, they remove the ability of providers to be profitable. The business must always be win-win-win with the end customer winning, your company winning and your suppliers winning. When it is not, one or more of the parties find themselves in a situation of misfortune, which can lead to the termination of the business relationship. Or, they will adjust their prices upwards on future quotes, pricing their requests off the market.

Profitability must be sustainable

Sellers reward loyalty with loyalty. Sometimes this translates into offering you a single source advantage that they might have given one of their competitors. Other times it takes the form of a killer price on a quote. Most of the time, returned loyalty comes in the form of service. The CEO of a supplier you’ve been loyal to will get up from the table, leave his wife and kids in the middle of the night, and drive across town on an urgent situation to save your job. Should you expect that kind of super service from a supplier that you order from only when their price is lowest? How much is that kind of service worth to you at the time of greatest need?

You have to stay competitive. In this economic environment, as in most, that comes down to price. Be frugal. Watch out for the pennies and the dollars will take care of themselves. Just don’t sacrifice long-standing relationships and downplay the service to save a few bucks. Often the lowest price is the lowest value. Offer the best value to your customers and accept nothing less than the best value from your suppliers.