Principle 4: End “lowest tender” contracts

Deming’s Principle of Management n. 4 full statement is as follows:

“End the practice of awarding business solely on the basis of price tag. Instead require meaningful measures of quality along with price. Reduce the number of suppliers for the same item by eliminating those that do not qualify with statistical and other evidence of quality. The aim is to minimize total cost, not merely initial cost, by minimizing variation. This may be achieved by moving toward a single supplier for any one item, on a long term relationship of loyalty and trust. Purchasing managers have a new job, and must learn it.”

Suppliers are an integral part of our system, and should therefore have the same aim for delighting the end user. Achieving this most effectively means building cooporation, and seeking together to constantly improve processes. This requires a belief on both sides that the relationship is going to be mutually beneficial and holds the promise of ongoing business.

In these economic times, all companies push to save dollars. Purchasing managers find cheaper goods and switch to the vendor that provides the cheapest material. If this is a critical material, then this practice will actually increase total cost. Price has no meaning without a measure of the quality being produce.

Look at your suppliers. When you go to evaluate the cost, look who helped you solve a problem with an innovative idea. When selecting vendors and critical materials, include engineering, quality, production and purchasing in these decisions. This method prevents someone from making a poor decision based on price alone.

Summing-up: End the practice of awarding business on the basis of price tag. Instead, minimize total cost. Move toward a single supplier for any one item, on a long-term relationship of loyalty and trust.

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