As mentioned in my previous post, a client company and its service providers have usually different approaches. Very few organizations are ready to go for full partnership and work together. The “win-win” collaboration becomes reality when both parties change the mindset. A new “operating system” can create and manage a constructive environment. It is especially true when it comes to price calculation for services.
The process of quotation takes place during benchmark, Request For Quotation, network optimization project or even daily operations. Don’t believe it is only the service providers’ matter. As a purchaser, a client company is the master of its business. So, it has to be the master of the quotation process the service providers will adhere to.
In a client – provider partnership, purchasing a service is not like buying a product from the shelves
While a customized solution is required, both parties need to understand what the price is made of. The client company has to be able to challenge the price. The service provider has to be able to explain it.
As a client company, know the cost of what you need and be ready to pay it
As a service provider, sell what you do and do what you sell
Anyone who deals with quotations knows that the topic is tricky. Yes, you are using a kind of standard structured file. It is corporate. At the same time, it is somehow adapted to fit local specific features. Yes, it includes some details, which are important from your point of view. Yes, you have your own way to check that the figures are consistent. But do you really think it is enough to make the calculation transparent and to agree on a new price with no doubts?… The more your – or your clients’ – purchasing strategy relies on regular benchmarks, RFQs or network optimization projects, the more the selection process – or the price calculation – should be close to perfection. It is quite a dare, isn’t?
But this is not all. Let us keep in mind that a quotation is just one step in the course of your activity. Business is changing and it may change between the time you – or you were – invited to quote and the time when you’ll send – or you’ll receive – the information about the final decision. Then, the further you go and the more unclear the meaning of the quotation is.
A transparent price calculation process is the sine qua non of long-term partnership
Too low prices cannot be sustained by the service providers on the long run. So, client companies should not expect anything but low or even poor service level and regular discussions for extra invoicing. Anything new, extra or different from the initial requirement will be heavily charged. That is the strategy of some players on the market as a reaction to – sometimes aggressive – RFQ process. First you win a tender then you try to make your money back. Eventually – and especially if the client company’s standard corporate contract includes significant malus system, some service providers go bankruptcy. That is risky for client company’s operations and its final customers’ satisfaction. It may also be risky, under some countries’ legislation, for the client company’s liability towards its partner.
Overpriced services happen as well. First reason is that there are good sales people! It also occurs as a deliberate choice of the client company. For instance, it may be a way to get the service up to the most advanced level and to be associated with the latest technological and / or environmental innovations. It may also be a middle – long term decision. For instance, paying more at the beginning can make sense while expecting the selected service provider to run better continuous improvement projects. The savings may be subject to contractual yearly commitments. But in the end, don’t expect a client company to be ready to pay more than it should forever. Agreement for higher prices is nothing more than an investment with the related Return On Investment. More important, be ready for a harsh backlash if the client company understands service has been overpriced for a while with no outstanding results, no specific reasons or no actions for improvement.
In the real life, the common situation is a mix of both too low and too high prices. This happens progressively because of different factors: the quality of feedback’s from the field, the difficulties in getting the right specifications or statistics data, the expertise and accuracy in quoting, the value of the quotation process itself, the more or less successful negotiations, the management of the changes and updates… This situation is not easy to correct. Each effort to make your price list consistent and fair is usually pointless. Your partner just cannot understand what you want! Finally, it will look like changing model is just your strategy to negotiate… The price list keeps its defects the impact of which is increasing with the time. As a result, the gap between the quotation and the operations makes the price incoherent. And puts the partnership at risk.
Inaccurate quotation prevents a positive progress of the business
Price calculation must be on the edge of transparency. At the end of the day, there is no way right or left. Each side of the path ends with a ticking time bomb. And it applies to both parties. Today, we like competitive prices but also solid companies.
To this end, the quotation process should always be the first step of a genuine collaboration with the future partner. It should be designed as a comprehensive and agile mechanism: integrating the complexity while remaining very easy for the users. This first phase opens further perspectives to manage and improve the activity.
Thank you for your interest.
Don’t hesitate to contact me for any question or comment.
This post is the 1st one out of 3 dealing with quotations.
My next post will list what is needed to make high-quality quotations for your benchmark, RFQ, network optimization project or daily operations.
The 3rd post will explain how your quotation process can be the starting point for powerful continuous improvement.
Your packaging value-added services activity is:
– About managing many modus operandi, bills of material and the associated processes whatever they are manual, automatic or semi-automatic,
– About ensuring end-to-end operations performance,
– About ensuring the best service quality level,
– Subject to continuous and frequent price calculation because of an update, a new requirement, a product change, a new technology,
– Subject to regular global benchmark, RFQ, network optimization project,
– Organized within a multi-country network of production sites,
– In-house or sub-contracted.
Check out the e-Quotation Models solution, a ground breaking Continuous Improvement software based on the quotation process.
e-Quotation Models – Smart Vision, Great Impact
This post was published the 12/20/2017 on LinkedIn at www.linkedin.com/in/yannis-faure