The Trusted Expert Model
Placing your trust in a long-term vendor relationship has many advantages. It's nice to deal with a supplier who values your relationship and is willing to go the extra mile for you. But the more you trust a single vendor, the less likely you are to notice when you aren't getting the best deal.
- Why is the trust model the most popular?
- Do distributors reward your trust with good pricing and terms?
- Is there a way to purchase with the ease of a trust relationship but keep suppliers competing for your business?
- How LPS can assist someone who has adopted the Trust model.
Trust Your Supplier
It just makes sense: Why would a major distributor with a great local representative that you give most of your business NOT provide you with competitive prices? Doing business this way is takes almost no effort on your part and you certainly don't have to take time out of revenue producing tasks to deal with supply problems. This strategy allows procurement to focus on the job of placing orders without having to worry about what they are ordering or how much it costs.
This strategy is founded in the idea that it is just takes too much time and expertise to pay close attention to the cost of items when there is little reason to believe that by doing so, the savings derived would outweigh the cost. And it is true that there are more Lab Managers who embrace this idea and feel justified knowing that many (if not most) other labs of comparable size do the same.
As labs grow to a certain size and the stakes increase along with having a board and a procurement staff, you seldom find this strategy in use. Why?
- The financial stakes are much higher to make the risk acceptable.
- The volume of purchases has increased to the point where the lab has leverage with vendors who now "beat the door down" for the business.
- There are enough resources to justify hiring procurement people who have been trained in contracting and negotiation.
Paradoxically, when a lab is small, the need to reduce expenses and increase margins should be far greater than a large lab with significant cash flows and deep corporate pockets.
Consider for a minute this issue from the distributors point of view.
- Like any other business, they must grow but they are in a market that is smaller today than last year. This means they need to make higher profits. The only customers that are still "variables" in the equation are the small, non-contract accounts. And they are very skilled at finding ways to increase their profit margins year-over-year, especially on customers who never seriously push back.
- Experienced sales reps are a vanishing breed. With sales calls averaging $275 per call, they are now focused on the larger labs only. Most small to mid-size labs now must deal with a telesales rep or the web. Representatives play a key role in representing both the company and their customers. This firewall is now gone.
- There are two large distributors in the U.S. Retail prices are manipulated to give clients the illusion of a good price. But if you take the time to look outside the two large distributors, you find that you have been getting a big discount off an inflated price!
Question: Do you have the time, talent and energy on your staff to do things differently?
The Pros and Cons
- - I have a sales rep that I have known for many years and I trust him/her to give me fair prices.
- - I can reduce the number of vendors I deal with saving me time and process costs (vendor consolidation.)
- - We like ordering on our distributors web site. We have just one login to remember.
- - My purchasing manager has no science background nor the time to go find alternative products and I don't want my lab technicians spending time shopping.
- - If I concentrate all my purchases with a single vendor, I get better prices and they offer me free shipping.
- - I have a long history dealing with my supplier and I am familiar with their products, web site, billing, etc.
- - If you are lucky (or big) enough to still have a sales rep, congratulations! A personal relationship is an invaluable asset. But keep in mind, they work with you and for their employer. Many company policies they have no control over, such as price increases.
- - The flip side of vendor consolidation is lack of choice and competition. Is it worth giving up? At what cost?
- - No lab can buy everything from a lab distributor. You buy office supply products and from vendors who only sell direct.
- - Sourcing requires many talents. You need to know if the item will work in the lab, if the vendor can supply the product and negotiation skills. A distributor sales rep is restricted to their portfolio for choice.
- - Although you may think your spend matters, distributors probably don't if you are spending less than $500,000. Nearly everyone gets "free" freight, but in the end, everyone pays for the freight one way or the other. Concentrating your spend hurts you by keeping you from looking at other vendors more than it helps the distributor.
- - It's human nature to resist change. However keep in mind:
The Trust Buyer and LPS
LPS assists the Trust / Relationship lab manager achieve cost savings, we:
- - Minimize the number of product/brand changes to achieve savings
- - Function as partners with current Procurement personnel
- - Respect and enhance existing preferred vendor preferences or relationships
- - Ensure changes are done at minimal/no cost and with minimal workflow interruption
- - Provide hard evidence / documentation of cost savings
- - Dramatic improvements in your labs Procure-to-Pay cycle lowering the cost per P.O. by as much as 80%
- - Product cost savings that average in excess of 20%
- - Complete and accurate spend metrics
- - The security of knowing that the price you are paying is a “fair” price because it has been verified by an independent 3rd party (LPS)
- - Reduced errors and time required to follow up on orders and problems
- - A new, deeper trusting relationship with a partner who is non-aligned with any specific vendor
How can LPS assist the buyer who believes in building a trust relationship with their primary supplier? Find out more!