The 8th part of an 8-part series titled:  “The View from the Other Side”

 

 

If you’ve read the seven previous posts, your reaction could be any or all of the following:

  • - This guy talks too much.

  • - My distributor would never do THAT to me!

  • - The situation is hopeless, I felt a lot better not knowing any of this!

  • - I’m too smart to be fooled!  I’m ready to negotiate now thanks to this information!

If you actually did take the time to read all of these posts, thank you for hanging in there!  Now the good news! LPS will work on your side of the table and save you money!

 


Every business is in the business of making profits.  So how can you claim to be working on my side of the table?

 

Working on your side starts with transparency.  Nearly all of the pitfalls I’ve described have their roots in secrecy.  Distributors never reveal their costs or profit margins. They ask you to partner with them, open your books, but never reveal theirs!

At LPS, we don’t bill for our managed services. We make our money off the profit margins of the items we buy for you.  Others charge $2,500 or more per month for their basic service which cover only a portion of what we do! Our standing offer to our managed service clients is to make our actual costs and margins available at any time on request.


But how do you actually save me money going up against huge distributors with all their buying power? 

 

Saving money starts with competition.  Sellers are most motivated to concede prices when there is a competitor who wants that business.  This is why competitive bidding is still in use today for big-ticket items. But for small routine business the resources and time required to bid exceed any cost savings.  By giving this up, we effectively but blinders on ourselves and force us to trust our suppliers.

The web makes anyone with the spare time and motivation to be able to find a lower price.  However, this requires you generate lots of orders, vendors, checks and charges to credit cards.  Only the most determined persist with this practice. When a vendor promotes “vendor consolidation and a world-class web site,” you are happy to accept no matter what it costs!

Working on your side of the table means that we continually look for a better way to buy your items.  We take what you buy, combined with our other clients purchases to get the best prices. Vendors must compete every day for your business.

If vendor consolidation is your goal, LPS is the best choice.  No matter how many items from various vendors, you have just one vendor and one purchase order!


I currently am under contract [I currently am under an agreement.]  Is there any way LPS can help?

 

If your contract is coming up for renewal in the next 12 months, LPS can help prepare you for the upcoming negotiations.  Has your vendor been living up to the terms of the contract? LPS can certainly help you figure that out by evaluating audit data.  At the end of year when your hot list prices change, LPS can help you decide if the price increases reflect what is going on in the market.

If you have signed a participatory agreement such as the Bio/Biocomm agreement then let LPS help you get the most out of it!  Since you are not “locked in,” LPS may be able to save you money!


Does LPS require a contract?

 

Only if you require a written agreement.  A confidentiality agreement to ensure that your data stays private is advised.  We expect to earn your business every day. If we don’t do the job and save you money, we don’t deserve your patronage.


Wrapping it up.

 

In the lab industry, big distributors are essential.  They have cavernous warehouses and are exceptionally good at getting you what you need for your lab.  You’ve probably been doing business with them for many years and may have a sales rep you trust.

The problem is that in a market that is growing at 2 - 4% per year, these distributors have promised shareholders double-digit growth.  Forty percent of this market is big pharma. If you aren’t spending over $200,000 in lab supplies with your distributor and have no contract, you are their ONLY source for raising profit margins.  Having a sales rep won’t help.

Although LPS counts some of the largest labs in the U.S. among its clients, our business is focused on the small to midsize labs.  Our business model is working on your side of the negotiating table to get:

  1. 1.) A fair price.

  2. 2.) A vendor who values and respects you.

  3. 3.) Stress free easy ordering.

We couldn’t agree more.


An Observation on this topic from Dr. Robert Fitzgerald, with NASA:

 

“I can say that procurement is costly - in many ways.  First, there is the obvious internal labor associated with time utilization of an invested resource - your employees!  Though it is generally accepted the average cost to seach, acquire, and pay for good and services ranges from $50 to $250 depending on many factors; however, let's use a fairly low overhead scenario and say $50 per P.O.  Even a small company issues say an average of 2 P.O.s per day and let's get even leaner - 4 days/week times 40 working weeks per year. That is about 400 P.O.s or $16,000 in labor - gone! “

“Everyone can scale appropriately for their own situation but it becomes obvious any way to reduce this expense/cost is necessary to improve the financial position of an organization.  Here is the big kicker though - what if a supplier or vendor issues a backorder? Brace yourself - the $50 per P.O. usually triples or more! Suddenly, the closer to reality we get the higher the number we wish to ignore!  If Procurement services can chip away at this direct, measurable expense, there is a win-win in the works! This all is independent of a variety of other factors but suffice it to say - buying goods and services ain't free nor cheap!  Using procurement services may be an easy way to lift the bottom line!”

 


 

What we have discussed in this series:

  1. 1.) Contract Terminology 101 - what are the components and what do they mean to you?
  2. 2.) Contact vs. Agreement - What’s the difference?  Do you have the right to shop elsewhere?  What about a “generic” or group contract?
  3. 3.) The Hot List and Price Caps - The pros and cons.
  4. 4.) Guaranteed Cost Savings - Hard vs. soft cost savings.  Metrics. Penalty clauses.
  5. 5.) Cost Plus Pricing - Depends a lot on how you define “cost.”
  6. 6.) Rebates and Prebates - Sound too good to be true?  Most likely it is.
  7. 7.) Profitization - How it’s done and how you can protect against it.
  8. 8.) LPS On Your Side - The LPS approach.  How it addresses these issues and is a better fit for many lab