Opportunity costs lost with bad quality

by Amancio Moraes

July 25, 2012

Week thought

Usually, purchase procedures focus in buying articles and / or service from the best price offered by vendor, as a unique worth to be achieved.

"sweet deception"

Putting ahead only price as procurement parameters to reach a supplier's contract, ordinarily can create "a posteriori", a huge problem with bad quality of articles and / or service, generating [undesirables] quality's expenditure regarding to scraps, re-work and "burnt" image, among others.

Smart purchase, in my point of view, must consider further criteria and parameters beyond buy prices.

Such criterias and parameters, must consider also bad quality costs already known from potential supplier in competition through similar articles or service historically delivered.

Such approach, that I would call the opportunity costs, must be considered in any offer.

Main reasoning:

• this statement is not new for lots of companies, so why they did not apply that as regular practice in its negociations?

I venture myself in answering why:

• either they do not know how much money they've been spending with non-conformity costs of such supplier (lack of accurate management)
• or they are not confidente in their accounting system that generate report about bad quality costs.

Further, head of purchase department should drive their partners to be open minded to hear from quality people regarding supplier performance in advance of concluding new procurement.

If you're in charge of procurement process, thing about how many money have your department been losing, not considering opportunity costs I reasoned here up.