“You just can’t benchmark plastics!” Eyes wide, fist shaking, veins throbbing and pugilistic posture all present, this purchasing manager insisted almost madly. He didn’t realize the irony of his insistence, his CEO present, that he couldn’t establish baseline pricing for the core material his company sold. The irony wasn’t lost on me and my CEO however. When the same manager defended his opinion based on his 27 years of “experience”, we later joked that he didn’t have 27 years of experience so much as he had repeated his first year 26 times.

Still, this procurement veteran is not alone in defending the indefensible to upper management. The expensive truth is that upper management often shares the very same view, particularly where core spends are concerned. It’s a disease born not of the absence of metrics for a purchase, but the fear of being measured by one’s performance. But let’s not be so quick to blame the purchasing manager. He has been well trained.

This manager had been, for all of his 27 years, well prepared with rhetoric by every polished salesperson to cross his threshold. Keep in mind, after all, that it’s the salesperson’s job not only to secure the order, but also to hold the profit margin. Is there any better way to protect price points than by making them a moving target? Consider that there are actually relatively few variables in this particular manager’s core purchase, among them: base material, thickness, length, width, and rigidity/flexibility. Of course one can drill down further on at least the base material and rigidity specifications, but essentially, those are the material specifications. In it essence, the price point for these purchases would appear easily measurable.

So where was the bogey? What made this purchase so exquisite and extraordinary that one could not accurately measure price points? A close examination reveals that the purchasing manager’s argument hinged solely on order quantity. He had a point. The economies of thru-put can create significant price dynamics. It stood to reason that 10 pieces of a ¼ inch thick, 3 x 5 sheet of clear Lexan, would have a significantly higher unit cost than 1,000, as would 1,000 versus 10,000. Only at the point of diminishing return should the price remain static regardless of quantity. His organization, he claimed, purchased so many variations of core materials that establishing a baseline would be an unconquerable administrative challenge.

Hysterics aside, we have to be compassionate for the bedraggled procurement manager. He’s been well trained by the enemy. His wild gesticulations and threatening posture were the result of the absence of the tools and training that would have empowered him not only to accurately measure pricing, but also to drive pricing, achieve economies of scale and pare out cost. Somewhere in his 27 years of management, he had not been introduced to the benefits of relational databases, and progressive supply chain management. Thus, he was at the pricing mercy of his supplier base. What was the end result? His employer’s company simply rode the pricing wave of the supply base and passed along the painful results to its increasingly price conscious customers.

That’s when the story becomes immediately less comical. The results of phrases such as you can’t benchmark (insert purchase here)” can be significant, not just for this year’s bottom line, but for customer retention and future growth. The risk of the “can’t do” mindset quickly evolves into the risk of being in business next year, or not.

Thus, effective procurement and supply chain management requires the “can do” mindset, and the investment in the tools, training and resources to measure, analyze, and manage spends for optimum value. There are no free lunches. Higher materials costs ultimately share space between reduced profits and the lap of the customer. Neither of which ensures long term viability. This manager’s insistence that a baseline price for a core spend could not be calculated was a disservice to both his employer and his employer’s customers. For the sake of long term survival, every organization owes itself the tools, the training and the resources to ensure they are not at the mercy of supplier rhetoric. For those organizations who haven’t yet made the investment, be advised that your competitors have.
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