Knowing when to stop squeezing your supply chain is an important intuition that you develop with time. Most people involved in procurement see their main objective as buying at the lowest price possible. But is the lowest price the lowest cost?
As a QS, I have felt that other people within the business viewed me and my team as an expensive overhead that doesn’t directly deliver sales or revenue. I think this feeling drived a subconscious desire to tangibly prove my worth by making savings and improving margins. One of the easiest, most visible ways to do this is to gain savings directly from the supply chain.
In my early days, I quickly learnt that the cheapest price wasn’t always the lowest cost. I went for the cheapest roofing contractor and quickly learnt that you get what you pay for. I also learnt that your team wont thank you for it. You might have driven the lowest price, but if their performance is poor, they’ll slow down progress, create issues for other trades and create embarrassment on behalf of your company in front of the client. The end result is, the cheapest quote ended up being more costly than the highest price.
Don’t get me wrong, as someone in procurement you should be looking to improve margins where possible, but you need to do this without compromising performance, and one sure fire way to compromise performance is to blindly select the cheapest subcontractor. There are more effective ways of reducing your costs and generating a better outcome for both you and your supply chain partners, like value engineering and reducing unnecessary or over spec’d scope items.
During my time in the industry, I have learnt that the extra 5% I may have made on package goes unnoticed. Your boss doesn’t see it, and you will rarely get any praise for it either unless you make reference to it, which just looks like you are fishing for compliments. What you do get recognised and noticed for is procuring subcontractors that deliver to high standards. When that happens, you get acknowledged for a job well done, as you were responsible for selection. More often than not, the extra 5% that you paid upfront may actually be a lot cheaper than the 5% saving you could have made by picking the cheapest subcontractor, who ends up not performing.