Fool's Gold: The Empty Promise of Best Price

There's a timeworn fallacy that suggests lowest-price is something akin to the Holy Grail. The reality is that lowest-price, taken in isolation, represents nothing more than Fool's Gold.

[From iSource Business, March 2001] In the world of indirect inputs this argument may be somewhat less supportable since indirect supplies tend to breed price sensitivity. But direct inputs represent a much more delicate proposition. Indirect inputs are the motor oil, while direct inputs are the gasoline. Both are necessary to run the machine but, while an oil change can usually wait, gasoline is a much less subjective issue: constrict supply and the machine grinds to a halt. Similarly when direct inputs are constricted, production hits the wall and reverberations are sent across the supply chain.

The integrity of any value chain is based upon a supplier's ability to deliver predictable, available-to-promise (ATP) information, or accurate information upon which to make critical business decisions. ATP allows manufacturers to make production judgments based upon what appears to be available in the upstream pipeline. Downstream, it allows distributors and resellers to make fulfillment promises based upon these very production runs. Misinformation introduced at one stage sets into motion a cascade of empty promises that tear at the fiber of the entire supply chain.

For all of us, the objective is a tightly integrated supply chain, which is fed by and is feeding just-in-time inventories. But the reality is that most supply chains are held together by false promises and kluge-like technologies that threaten to send worlds colliding.

This is particularly true in the emerging world of e-marketplaces where few suppliers have tied their backend systems into e-marketplace infrastructures to the extent that they can deliver credible ATP capability. Business buyers sourcing through an e-marketplace should qualify suppliers based on the latters' commitment to only real-time integration and true ATP capability.

e-Marketplaces have redoubled an already price-sensitive culture, which has perpetuated the lowest-price fallacy. This should only make sense. Suppliers see e-markets as a wellspring of demand, which drives mass participation. The flood of new participants fuels hypercompetitive forces, which drive prices through the floor. In the panicked rush to market, many suppliers have forgotten one minor detail: to deliver service capabilities similar to what customers expect across traditional channels. Many suppliers have failed to acknowledge that while markets have been radically transformed, business requirements remain exactly the same  both online and off.

This is not to say that business buyers should dismiss e-marketplaces as a source for supply. Prospect, qualify and only then engage with suppliers. Approach the e-marketplace proposition as precisely what it represents, which is an unknown quantity. Rate suppliers, not on their willingness to float the lowest price, but on their commitment to consistently deliver on promises which makes the e-marketplace a viable model for commerce.

The reality is that while many suppliers believe they are delivering rock-solid ATP it often amounts to something fundamentally different. Technologies designed for this purpose often fail to integrate, in real-time, into a supplier's existing enterprise business systems  systems that dynamically generate ATP calculations. Many of these platforms leverage a duplicated version of a supplier's business logic or a set of static data. This offers nothing more than a snapshot of a very dynamic world, which is accurate at a moment in time, but not accurate in real-time.

In the fevered rush to exploit the silver-bullet promise of new e-markets, perhaps we've forgotten the fundamentals. Sustainable trading partner relationships are about delivering on promises. Business buyers hell-bent on lowest-price may find themselves victim to empty promises. In the final analysis this will prove far costlier than a price-premium any day.