A simplified variation of my definition of procurement value is “how much quantifiable monetary benefit your organization receives from purchasing something.”
In procurement, we often use the concept of value to compare supplier proposals in sourcing decisions. But you can also use it in negotiation.
For example, let’s say that a supplier proposes a higher price in a new year. Often proposed price increases are accompanied by some type of explanation, generally emanating from the classic excuse “our costs went up.”
You can respond to this proposal in a number of ways. One way may be to challenge the supplier to quantify the additional value you’ll get from the product or service in the next year compared to the previous year.
The supplier may not be able to give you an acceptable answer.
So what if their costs went up? So what if they gave their employees a pay raise? How will that help you, as the customer?
Push for an answer. If there is no true answer, then (if you can) refuse to accept the higher price.
“I don’t buy features. I don’t buy highly compensated supplier employees. I pay for value. If you’re giving me last year’s value, then I will pay last year’s price.”
You can also use this to negotiate prices for products or services that a supplier puts on a time-limited sale, even after that sale expires.
“You offered this product/service for 40% less last month. What’s the difference between the value the customer gets this month at full price compared to last month at the discounted price? Oh, there is no difference? Well, then I’ll pay the discounted price. What? That was a one-time offer? Sorry, I pay for value. If last month’s price of the product/service was appropriate for the value delivered – and nothing with the product/service has changed – then surely it should be an acceptable price this month.”
There are countless applications of the “I pay for value” tactic in procurement negotiations. I encourage you to create, apply, and test your own!