Do Not Choose Your Suppliers Based On Price Alone

Happy New Year!  I hope that everyone had a wonderful holiday season and is ready to make 2012 their best year yet!

Over the holidays I had a couple of challenging situations with companies contacting me to help with emergencies.  Ironically, these emergencies could have likely been prevented had some cautionary steps been taken to prevent them from occurring in the first place.

These emergencies occurred because these individuals simply chose their suppliers based upon price alone.  These suppliers both were new in their own respective industries, smaller companies with very few testimonials and mixed online reviews.  A quick review of the quality of their products revealed several clues that they were most likely not very experienced in their respective industries.

If you were ever to require an emergency operation, and have the option of two potential surgeons; one that has performed a dozen operations with a 50% success rate versus one that has performed a thousand operations with a 95.3% success rate but costs marginally more, which one would you choose?  Now that you’ve answered this question, think about why you’re willing to take so much more risk with the success of your business?  Is it simply because it’s your company’s life on the line and not your own?

Now that you’ve thought about that, here’s a summary of the emergencies that occurred:

  • Domain name expired.  No customer service available to rectify the situation.  Downtime prior to resolution was 42 hours.
    • Amount saved by choosing based upon price alone: $5.75
    • Lost revenue*: $11,700.00
  • eCommerce transaction issues on boxing week.  Nothing supplier can do, their servers are overloaded.  Intermittent transactional issues totaled approximately 19 hours.
    • Amount saved by choosing based upon price alone: $1,500.00 / year
    • Lost revenue*: $32,915.79

* Estimated by taking average revenue from previous year during same time period.

If you consider the financial impact alone, you will quickly understand that choosing suppliers based solely on price in most cases can be catastrophic to your cash flow.  In these cases, one of these companies that contacted me relies heavily on seasonal sales and it will take them several months to recover.  This doesn’t even address the potential damage done to both the reputation of their company and the loyalty of their long-term customers who very likely have purchased the products and services that they required from competitors.  Ouch!

Believe me when I say that these companies have learned their lessons and are already performing the steps necessary to prevent these issues from occurring again.  They are not only performing research and assessing customer reviews to correct these issues.  They are also assessing all of their other suppliers and have vowed to make the changes necessary to ensure that the backbone of their online presence is in top shape.  Essentially they’re executing a New Year’s Resolution to get their business in top shape; one that is stable, secure and agile so that they can focus on ensuring that they remain industry leaders in their respective domains.

The next time you’re about to make a decision with respect to potential suppliers, ensure that you consider if the supplier you’ve chosen is one that you can trust during both smooth and turbulent times only after you’ve taken the time to do your research.  Deciding on your suppliers is an important decision that will drastically impact where your business is positioned within your industry.

So many people are mesmerized by price alone and don’t even make any consideration with respect to the quality and reliability of the products and services that they are purchasing.  In many cases, individuals make decisions to save a few dollars that cost them several thousand later.  This is the wrong approach.  It’s time for you to realize this and compliment your own personal New Year’s Resolution with one for your business.  Individuals make New Year’s Resolutions all the time as a goal to improve their health, wealth and happiness; it’s about time that companies do the same.

I hope that you found value in this article and can learn from others’ experiences, it’s a lot less painful than learning them yourself.  What’s most important is to not dwell on any past mistakes or misjudgements, but to correct them and look forward.  Live each day in the present, but make sure that you create and revise your plan for the future a couple of times each year.  Happy New Year!

Brent Mondoux
CEO, N-VisionIT Interactive

Ottawa web design

One comment on “Do Not Choose Your Suppliers Based On Price Alone

  1. Learnt this lesson way to many times to count! I don’t know what it is with people always suckering ourselves into the “best” deal only to learn the hard way over and over again. Very wise words from a wise man, I second your solid advice.

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