Probably no other topic creates as much apprehension between two companies as trying to determine a fair price. The conventional procurement process pits buyers and sellers on opposite sides of the table. Classical negotiations training uses tradeoffs and concessions as tactics in order to get the best possible price (or preserve as much margin as possible if you are a supplier). A win for the supplier means a loss for the buyer. The result? A zero sum game. A mindset where the parties fight over taking bigger slices of the pie instead of combining talents to make a bigger pie.
Progressive companies are starting to challenge conventional approaches by looking at the world through a different lens. Simply put, it is not how much a company pays, but how much they get – or Best Value. This requires procurement professionals to move beyond price and truly understand the total cost of ownership (TCO) and associated hidden risks in order to determine the Best Value for the goods or services they buy and use.
Despite the fact that TCO and Best Value have become industry buzzwords in the last decade, the use of the concepts is far from widespread. Although it is widely understood that both terms fundamentally mean “more than just price,” the fact remains that many companies have yet to embrace the concepts in a way that shows they truly understand the approaches and how to use them to maximize value.
The primary goal of this white paper is to help procurement professionals to better understand value-based approaches for procuring goods and services. This white paper explores:
- Price vs Best Value: Why a Best Value Approach is Needed
- TCO and Best Value: A Brief History and Key Definitions
- Boundary Spanning Transparency – The Foundation for Success
- How to “Buy” Best Value
- An Overview of Value Based Pricing Models