Six Tactics to Maximize the Purchasing Function: Tactic 6 — Consistency and Fairness

Purchasing Best Practice

 

Jan 28 2016
Barry Olson

This article is the last in a series of six tactics in which the electrical contractor can maximize purchasing power and profitability though procurement.

During the course of this year, I have shared five tactics that I hope have assisted you in making better buying decisions. I covered topics that included taking advantage of economies of scale, time and valuation of materials, as well as some caveats about the your vendors’ persuasion techniques. For this last tactic, I explore the keys to successful buying regardless of your current ways and means of procurement.

To be successful in your buying efforts, you must decide what actually constitutes success. If success for you is measured on individual job buyouts and beating job budgets, then a strategy built around the lowest net cost will work well for you. If your measure of success involves targeting specific jobs and niche work, then a longer-term approach involving vendor partnerships would be in order. The difference between each of these strategies is more a question of time than anything else because a vendor partnership is difficult to develop overnight, but both strategies have their place and will contribute to your bottom line.

The secret to making either or both of these strategies work for you is consistency and fairness. Vendors will work with whatever strategy you choose, but to maximize the return of your efforts, you must be clear about the rules. Establishing a set of rules and holding to them clarifies your intentions and expectations and will give your vendors the ability to give you their best efforts. In the lowest net price scenario, put your vendors on notice that your decision will be based strictly on price. Also, make sure to let them know that you will review all bills of material to ensure the prices reflect a fair comparison. In the vendor partnership scenario, tell the vendors that you are committing to them as long as their pricing remains competitive. If, for some reason you discover a lower price, then bring that information to your vendor partner. In a worst-case scenario, giving your vendor partner the first right of refusal is required to prove your intentions, but it still offers a way to gracefully end the partnership on that particular project with no hard feelings.

If you choose to go with the lowest net cost, ensure your vendors are aware that the price they offer for buyout on a project will be their only chance to write the order. Do not play the game of calling two vendors and offering them the order if they beat another vendor’s price. This practice undermines your ability to truly receive a vendor’s best price because they start to view the process as a rigged game and will become unmotivated to take part in future bids.

If your strategy involves partnering with vendors, then once you have chosen a vendor team, stick with them. Abandoning a previous commitment solely because of a potentially lower price will strip away any goodwill and trust you previously established. This doesn’t mean you should ignore a lower priced package, but it does mean bringing your vendor partner in and letting them know they need to work on a better price to remain competitive. Sometimes, a vendor partner might not be able to reach the price required, but to be fair, partnering with a vendor demands the first right of refusal.

Every contractor has a different procurement model. Some want their project managers to direct buyouts and are decentralized in nature; others have a more centralized system in which the purchasing department must be used for any purchase. Further, many contractors have a blend of both models that works best for their needs. The good news is that whatever means of procurement you are currently using is probably in place because it has served you well in the past. There is no reason to change your current procurement system unless it isn’t working or if it is providing inconsistent results. The key to maximizing your spend regardless of the procurement system you have in place is to make the process consistent and repeatable. This also doesn’t mean you need to choose between the lowest net cost approach or the vendor partnership approach as an overall philosophy, but you must define which approach you intend to take for each specific job and stick to it.
One of the biggest issues I have run into over and over again is when the estimating department takes the vendor partnership approach during the bid process, and after a project is won, the buyout team decides to take the lowest net price approach. This practice not only confuses and creates discord among your vendors, but also gives them reason to stop supporting your estimator’s efforts to obtain competitive pricing. We all know that estimating is the key to obtaining future work. Why would anyone want to sabotage their function? Unfortunately, that is precisely what happens when a procurement strategy is not in place from the beginning of the bid process and followed through upon project buyout.

Understanding how best to work with their customers is one of the biggest challenges a vendor has. By developing consistent and fair guidelines for procurement, you are helping them interpret what strategies they can use to help you be more successful. Every good vendor realizes they can’t receive every order you need to place; they just want to be treated fairly and trust that their hard work will pay off in the end. By offering your vendors the clarity of your expectations for a specific job up front and then following through on that plan when you win a contract, you are creating an environment that will deliver consistently competitive pricing that will help you win even more future work.

I sincerely hope this series of six tactics has offered information that you can apply to your current organization and even more so helped maximize the profitability of your project buyouts. The procurement function is often overlooked in many firms, yet it has the potential to contribute greatly to the bottom line if run strategically and consistently.


Barry Olson has 25 years of purchasing experience with large union contractors and is currently the director of purchasing for SASCO in Southern California. He holds a Bachelor’s degree in organizational leadership, is nearing completion of a Master’s degree in the same discipline, and plans to continue his studies with a Ph.D. Barry can be contacted at BarryOlson@Outlook.com.

This article has been reprinted with the permission of Electrical Contractor Magazine. The series originally appeared on ECmag.com in 2015.
Read the first five articles, on
• economies of scale
pricing 
• time
• influence
• know your prices

 

 

Related Articles


Latest Articles

  • Ontario’s Institutional Component Drives Non-Residential Construction Intentions in May 2025

    Ontario’s Institutional Component Drives Non-Residential Construction Intentions in May 2025

    uly 14, 2025 In May, the total value of building permits issued in Canada rose by $1.4 billion (+12.0%) to reach $13.1 billion. The increase in construction intentions was driven by Ontario’s institutional component (+$1.3 billion). On a constant dollar basis (2023=100), the total value of building permits issued in May increased 11.8% from the previous month and was… Read More…

  • Plan Group Partners in Construction of UHN Surgical Tower at Toronto Western Hospital

    Plan Group Partners in Construction of UHN Surgical Tower at Toronto Western Hospital

    July 14, 2025 Plan Group is proud to be a partner in the construction of the UHN Surgical Tower at Toronto Western Hospital. Plan Group will provide work on the project in: Mechanical: Plumbing, HVAC, Controls, Medical GasElectrical: Lighting & Controls, Power Distribution, Emergency Generators, UPSTechnology: Structured Cabling, AV Systems including Digital Signage and IPTV UHN’s 15-storey Surgical… Read More…

  • How Canada Can Equip Workers for a Low-Carbon Future

    How Canada Can Equip Workers for a Low-Carbon Future

    July 14, 2025 The Canadian economy is shifting towards low-carbon industries, and the workforce is shifting with it. New roles are emerging, traditional ones are evolving and the demand for skilled workers is growing fast — particularly in light of the ambitious nation-building agenda the federal government has set out. In the federal Speech from… Read More…

  • Clarification from ESA on Labour Mobility Updates Between Provinces

    Clarification from ESA on Labour Mobility Updates Between Provinces

    July 14, 2025 Effective July 1st, 2025, ESA implemented changes required under the Bill 2Protect Ontario Through Free Trade within Canada Act, 2025 and the Ontario Labour Mobility Act, introduced by the Government of Ontario. These legislative updates aim to reduce interprovincial barriers and support the mobility of qualified tradespeople across Canada. Out of Province Master Electrician… Read More…


Changing Scene

  • OEL Apprentice Success Project Available Until March 2026

    OEL Apprentice Success Project Available Until March 2026

    July 14, 2025 With renewed funding by Ontario’s Skills Development Fund, the OEL Apprentice Success Project is now available for another year until March 2026. The project is part of OEL’s Employer Engagement Program (EEP) consisting of wage, training, and equipment subsidies for apprentices. These funding opportunities are available to OEL Members and non-Members. For… Read More…

  • EB Horsman Unveils New Mural at Campbell River Branch

    EB Horsman Unveils New Mural at Campbell River Branch

    July 14, 2025 EB Horsman & Son are thrilled to unveil a new mural at their Campbell River branch, painted by the talented Kwakwaka’wakw artist, Adam Lewis. “This stunning piece celebrates Indigenous heritage and our community spirit,” said EB Horsman on LinkedIn. “As we mark 125 years of serving Western Canada and 55 years in… Read More…

  • Glenco Electric Celebrate New Red Seal Team Members

    Glenco Electric Celebrate New Red Seal Team Members

    July 14, 2025 “The Red Seal Journeyman designation is the highest recognition in the trades, and we’re proud to have seen so many of our team members earn it under our watch,” said Glenco Electric on LinkedIn. “At Glenco, we’re big on mentorship and promoting from within. When you combine that with driven, hard-working professionals,… Read More…

  • Canada and Ontario Investing to Improve Energy Efficiency in Province’s Agri-Food Industry

    Canada and Ontario Investing to Improve Energy Efficiency in Province’s Agri-Food Industry

    July 14, 2025 The governments of Canada and Ontario are investing up to $3 million and launching the third intake of the Agricultural Stewardship Initiative (ASI) to help farmers implement projects to improve the energy efficiency of their farming operations. To support the province’s plan to protect Ontario, this funding will help local agriculture, agri-food… Read More…