Sunday, November 14, 2010

Paying too little.

During my early as a young man selling engineering product the maxim of John Ruskin has been drummed into our mind by the Senior Sales Engineer.

 “It is unwise to pay too much, but it's worse to pay too little.
When you pay too much you lose a little money - that is all.
When you pay too little, you sometimes lose everything, because the thing you bought
was incapable of doing the thing it was bought to do.
The common law of business balance prohibits paying a little and getting a lot;
it cannot be done.
 If you deal with the lowest bidder, it is well to add something for the risk you run,
and if you do that you will have enough to pay for something better"
John Ruskin (1819 - 1900)

Too many disasters occur because the customer wants to have something very good for very little cost. All too many public sector procurements end up as lemons (to be polite) because they insist on the lowest price as being the main discriminator. Price is important, but so are:
  • the track record of the supplier - which includes their reliability.
  • the experience of the supplier in this area of requirements and their quality regime.
  • the facilities available in the product(s) or service(s) offered.
  • their product support, training and maintenance services.
It is easy to mistake price and cost. The price is what you pay for an item. Cost has many dimensions and many of them are intangible, ongoing costs which can potentially cripple a business. Which brings me to the most important point.

 Do not buy for fashion, or appearance, or whim - buy because it brings to your business clearly identifiable and quantifiable benefits. You should write down what you intend to achieve, because at the end of the process you should be able to check that you have indeed achieved the benefits you expected.  

The cost of any product or service must be proportionate to the business benefit to be derived. If the benefit is high, then some risk is likely to be involved too. There are very few cheap, quick and effective fixes. You rarely get great benefit for no effort.
 “There is hardly anything in the world that someone can’t make a little worse and sell a little cheaper – and people who consider price alone are this man’s lawful prey”.

John Ruskin (1819 - 1900)


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