Negotiations tip: what is the real bottom line value of a piece of equipment?

This comes from a very recent experience. We all do (fingers crossed) proper homework when buying an expensive piece of equipment. However, sometimes, since it usually is a very ad-hoc unit, finding reference points is difficult.

What I have learnt recently – the supplier himself can be a very good reference point. Very short and simple tip: while negotiating, discuss a “buy-back” price. Ask them: if the product is not successful in the market and we would need to sell the kit, would you be interested in buying it back? For how much? Their answer is your benchmark. Everything else – “expected monetary value” – is a profit that a business could have if they would use the piece of equipment and all other supply chain parts would work well (incoming goods, operations, sales).

Hope you can use this! This definitely goes on my future question list for Capex negotiations.

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Negotiations tip: what is the real bottom line value of a piece of equipment?

Toilet Paper Test. With results

toilet paper

Albert Einstein once said: “if you cannot explain it simply, you don’t understand it well enough”. And I so much believe it! Life is simple, procurement is simple – unless people ruin it by bringing in all that unnecessary complexity… I will keep this post short and simple too for few reasons:

  1. It is simple.
  2. I did not like the results of my experiment (yup, it is always easier to write about “revelations”, “scandals”, “NEWS!!!” – especially in a bad context. And this time it is not the case. Well, not entirely.).

I have to admit I have a professional disease. I like to know, how efficiently organizations are managing their spend. Especially public ones. And it is definitely not something they are willing to share openly with anyone that opens reception door. However, there are signs to look out for, which give insights very quickly and easy. I call it toilet paper test.

So here it goes: every time I go to any public toilet (GP, airport, schools), I check few things: paper dispensers and the paper itself (or, of course, different technologies – air blades). It is very easy to distinguish between cheap simple paper and a very expensive, printed fancy paper. That simple thing can show you, whether or not a school or GP are potentially overspending up to 30% for this category. And, if they are not working on cost reductions (or over-specification elimination) in this category – what makes you think they work better in other areas?

A week ago (OK, a month ago) I was reading a description of difference between good and bad scientist. And one of the points was saying, that good scientists are ready to accept any results of their experiments: despite the anticipations they had. So here it goes…

I have checked ten schools and three GPs. I have the names written down – should anyone would be after details. I was expecting to see that expensive paper everywhere (or at least in most places). And my assumptions were wrong. The results showed, that only two organizations had very expensive backsides. Eight organizations were using “average” products and three of the list were using “lowest specifications” paper. I (we) should be happy! Yay.

However, then I remembered another exercise that I did about uniforms The Emperor’s new clothes. Or what does it take to become efficient in procurement. Does it mean, that when it comes to their own money, people (organizations) are managing it quite properly, but when it becomes an opportunity to make decisions about “someone else’s” money,  all the logic goes away? Once again – universities and experience can give you tools and knowledge. But none of them can give you the right attitude (and the importance of it is shortly covered here: Dark Matter in Procurement?)

Toilet Paper Test. With results