Why Awarding Business On Price Tag Alone Is The Bad Idea?

Cash flow is the king variable, when it comes to streamlining business operations. This is why many companies guard it as a sacred notion while formulating business strategies. Although it is necessary to lessen the extent and type of expenditure across the corporate but it must be not be done at the cost of quality.

Quality begins with the management intent, followed by its translation into customer requirement, voice of process etc. If the organization is determined to produce uniformity and reliability into end product/service, than it is necessary to not leave the incoming-quality and price to the forces of competition alone.

W. Edwards Deming, renowned quality guru, shed a light over this point as:

“Price has no meaning without a measure of quality being purchased.Without adequate measure of quality, decision makers drift to the lowest bidder which results into low quality product at the end of the day.”

It means the aim in purchase of either raw material from a vendor or hiring a contractor services, price tag must not be the sole criteria for allocating business to any company. Such practices can indicate short term success over buying low cost options by it will be disastrous for the entity in the long run.


Economists teach the world that competition in the marketplace gives everyone the best deal. It could have been validated in the past days when baker had his customer, the tailor his and so forth. This scenario is different today;

“Price Tag is easy to read but an understanding of quality requires education.” Edwards Deming

Any purchasing department can shift its perspective, in order to strengthen the institutionalized sustainability, by taking the following starting measures:

  1. Initially it must change its focus from lowest INITIAL cost to lowest TOTAL cost. It means buyer personnel must understand the important characteristics of quality for the specific raw material being purchased or project being allocated.
  2. Afterwards, purchasing department must analyze the continuous improvement commitment of supplier or contractor. It can be done by asking the statistical improvement measures put in place by the bidding parties in their previous projects. It is very important to engage with the bidder who know about an essence of continues improvement rather than one who is practicing traditional measures.
  3. Purchase of commodities or service can be moved to the single supplier or very small pool of suppliers. When win-win trust is established with the long term cooperation, than supplier tend to put in more efforts to entertain the best buyers.
  4. Likewise, benefit of working with handful of supplier is that they understand the requirement very deeply and work with their buyer side by side to ensure the product/project viability. Japanese management learned in 1950, that solution to improve incoming material or sourcing contractors is to make a close relationship with few as it results in long-term relationship of loyalty and trust.

One of the famous dialogue between customer and producer at Nasua Corporation in 1985 was:

“This is what I can do for you,

Here is what you might do for me.”

Understand: Companies pay a huge price when selecting the lowest bidder on the basis of price tag only. When a vendor is biding too low cost for the quotation, that either they are going to compromise the quality of material or will cause the poor workmanship at project. This responsibility solely falls on the shoulders of policy makers of organization who make the purchasing department to go for lowest bid. What value can the lowest bidder provide, who hasn’t demonstrated the practicality of continuous improvement in first-place?



Out of the Crisis: W. Edwards Deming

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