Perspectives
The lost opportunity in buying cheap
Too often, procurement is viewed only as a cost saving exercise, and success only measured by how much money can be saved. In reality, the lowest price does not always represent the best value – and often a drive for the cheapest option will end up to be a more expensive choice in the long run.
In this article, Karen Wilson, Mace Macro Customer Relationship Manager, explains how ‘buying cheap’ can often prove to be a lost opportunity.
In practice, our experience has shown that the lowest price option normally comes with a set of unpredictable risks. The best option is not always the one with the lowest cost against it, particularly if you’re procuring mission critical services for your business.
Below, I’ve outlined five reasons why you should look for value rather than cost in your procurement:
You lose the focus on innovation
In order to remain competitive in the fast-moving facilities management industry, innovation is vital. It is increasingly becoming a requirement from buyers, baked into the procurement process.
When partnering with a new service provider you are able to utilise their expertise, knowledge and network to help reduce your overall operating costs. Their status as specialists means they can offer a wealth of experience and innovative processes – but if you buy in the cheapest solution there is unlikely to be enough funding within the contract to invest back into innovating and improving the service delivery.
Only short-term gains
It is extremely difficult to maintain high standards and corporate reputations when operating facilities management contracts on extremely low margins.
If you buy a service at a low price that is not sustainable, you are incentivising your provider to push for further gains later on in the life of the contract, often producing a toxic relationship and a drop in standards.
By investing in a genuine partnership from the beginning, long term relationships can engage service providers in a process of continual improvement which can be built on by developing Key Performance Indicators and Service Level Agreements over the course of the contract.
Partnerships
The most successful outsourcing partnerships are built on clear objectives, goals and share a joint purpose. That means you have a clear and strong contract – the foundation of every good corporate partnership.
Bad contracts often contain many unwritten expectations around savings, delivery and introduction of innovations. This is often the case in low value procurement exercises as there isn’t the inclination or the incentive to consider these issues at the outset.
These unwritten expectations lead to difficult and adversarial relationships further down the line if not managed properly.
Risk
Competitive bidding can result in service providers looking to scale the service and performance to the price and not the contract specifications. This produces much more risk for both contractor and client. Contracts that are awarded generally on price are more likely to fail due to lack of understanding or expertise.
If you don’t recognise or quantify the risk that low cost provisions are introducing to your organisation, you can’t adequately prepare for them.
The right procurement process produces a level of service provision that minimises risk where possible – and identifies it and allows for mitigation where it can’t be minimised.
Lack of workplace productivity
For global corporate facilities management clients, the workplace has to function well to enable productivity, as well as creating a space that employees actually want to come to every day – across multiple regions, countries and continents.
Different types of employees want different things from a workplace. Different technologies impact different companies in different way, and if you’re working globally it’s often very hard to find strategic approaches that work across all markets.
A low-cost option will mean no head room for the level of strategic thinking required to deliver a genuine productivity-boosting FM service across multiple markets. To do that, you need to centre the ‘end-user’ in your service delivery – and if you’re operating on a razor thin margin that just isn’t possible.
