"You get what you pay for!"
Most of us have heard that phrase since we were kids -- mainly from a parent who experienced paying less for something that fell apart soon after buying it.
Ed Deming thought it was best if companies considered the quality and value they were getting for a purchase rather than just buying the cheapest product or service available.
This month we're looking at Dr. Deming's Point #4, "Buy for quality, not for the price tag."
Dr. Deming believed that companies purchasing high quality products and services will 'create' high quality products and services. He observed that companies buying the cheapest products they could find had a difficult time producing high quality for their customers.
We often think of the phrase 'buy for quality, not for the price tag' as applying to goods, and not necessarily to services.
But services fall into this category as well, whether it's consulting services, financial services, repair services, or janitorial services.
It's not always true that the more you pay for something, the better the quality. I can think of many high-priced consulting firms that charge $150 to $300 per hour for the services of new consultants just barely out of college. Clients paying that kind of money for a novice are not getting what they're paying for. A better phrase for this situation is, "Let the buyer beware." But that is the exception rather than the rule. Most of the time, companies get what they pay for.
Deming has said, "Price has no meaning without a measure of the quality being purchased." By developing a long-term relationship of loyalty and trust with a supplier, a buyer can serve his company well.
A Deming researcher, Mary Walton, has said, "Striking deals with the cheapest supplier is the accepted American way of doing business. Certainly thrift is an admirable quality, and costs are important. But if low cost guarantees low quality anywhere in the supply chain, then the final product, though it may be cheap, will also be of low quality. Indeed, often low quality of the final product can be traced back to problems with incoming materials."
Deming believed that suppliers of products and services need to be a part of their customer's team, along with their customer's own representatives from related areas, such as manufacturing, purchasing, sales, and any other departments involved in the process. Creating a team effort, he found, led to higher quality output.
Following this idea of cost, the December 2003 issue of Fast Company magazine included an article about Wal-Mart titled, "The Story that Never Gets Told". It starts out with the story of the Vlasic pickle company, which had done business with Wal-Mart for a while.
It begins, "As Vlasic discovered, the real story of Wal-Mart, the story that never gets told, is the story of the pressure the biggest retailer relentlessly applies to its suppliers in the name of bringing us 'everyday low prices'. It's the story of what that pressure does to the companies Wal-Mart does business with, to U.S. manufacturing, and to the economy as a whole. That story can be found floating in a gallon jar of pickles at Wal-Mart."
One of Wal-Mart's goals is to provide the lowest price possible to its customers. For that to happen, Wal-Mart decides that, for products that remain the same, they will pay less, and charge less, for those products from year to year. What they don't tell you about is the "high cost" of doing business with them. Fast Company reports, "Wal-Mart has the power to squeeze profit-killing concessions from vendors." Companies doing business with Wal-Mart have had to close many U.S. operations, lay-off workers, and take their business overseas to get their products made more cheaply. Other companies have gone out of business.
Fast Company also wrote that in the late '80's and early '90's, Wal-Mart told us over and over that they "buy American". Well, they're not saying that any more. At least they're honest. In the late 1990's and early 2000's, they doubled their Chinese imports. In fact, their imports from China in 2002 amounted to almost 10% of all U.S. imports from China.
The Vlasic story is classic (no rhyme intended). The gallon jar of pickles they supplied to Wal-Mart sold for $2.97. They each made only 1 or 2 cents per jar. It hurt Vlasic's business outside of Wal-Mart, cutting into their more profitable business. They begged Wal-Mart for price relief, but Wal-Mart would not let up.
Lower prices are great for us as consumers. But what is the cost?
Wal-Mart is now the largest company in the U.S., not just the largest retailer. They have incredible power. The Economic Policy Institute reported, "Wal-Mart’s trade deficit with China alone eliminated nearly 200,000 U.S. jobs between 2001 and 2006." When too many people in the U.S. lose their jobs because of Wal-Mart's profit-squeezing tactics, lower prices at Wal-Mart are not going to help those people.
Can 'buying for quality rather than the price tag' apply to more than just a company's purchases? Can it also apply to us as consumer buyers?
What does 'buying for quality and not for the price tag' mean to you as a businessperson and as a consumer?
Are you getting what you pay for? Is it great? good? terrible?
What are you going to do about it?
©2012 Borgeson Consulting, Inc.
Glory Borgeson, President
2012 Borgeson Consulting, Inc.
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