Is choosing by price the best solution?

Foma
Jul 11, 2023
Price is certainly an important element of any supply relationship; what is often not taken into account are the elements that underlie its construction, and thus can vary its value. The suppliers of an average company provide goods and services that, in terms of volume, can amount to more than 70% of the entire income statement.

Indeed, it becomes crucial to be able to evaluate the supplier not only on the basis of the price offered but also on the basis of other factors: production facilities, investment propensity, qualification of its staff and the nature of the services offered.

As Giampiero Volpi explains in this interesting article in the 24-hour Sun, in addition to reliability, financial sustainability, and regulatory compliance, there are three other key factors that a company must evaluate when strategically choosing a supplier.

💡 1) Innovation: one of the objectives that leads companies to outsource a process is the search for suppliers who can constantly propose technological and process innovations that can, in the medium to long term, create competitive advantages for the client company as well;

🌱 2) Sustainability: the company's sustainability plan can depend up to 90% on the supply chain. Respect for the environment and people, for example, are increasingly basic factors in choosing a supplier, which today must be able to document possession of the appropriate certifications and understanding and application of current industry regulations, for example: the use of rare earths, conflict materials, hazardous materials, and so on;

🛠 3) Risk: Suppliers, by their nature and geolocation, may be affected by numerous risk factors, which consequently involve the products and services they offer. Their risk profiles enter every purchasing process; therefore, they must be carefully analyzed to assess their possible negative impact and enable the company to define actions to avoid compromising the entire corporate supply chain.

"Supply risk management is a pivot on which to build new purchasing models that enable the effective sourcing of innovation and sustainability but are also prepared to deal with adverse events and protect the company's performance. Suppliers with these profiles are thus presented as potential players in building enterprise value. It is up to the latter to know how to exploit their potential and transform a purchasing relationship into a partnership relationship."

So let's pose the initial question to you, "Is choosing based on price always the best solution?"

Let us know what you think, Contact us.

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