Early in my career I met someone who contributed to my professional development, and was somewhat of a mentor to me in the world of product design and development. Sadly, he passed away not that long ago, well before his time; but his insights remain with me and have impacted my actions across many areas of business development and management, and not just products.
He once said during a product review meeting, “Price, Quality, Delivery…Pick Two,” and exuding the child in me, I replied, “What do you mean?” I mean, I was young, naive, and thought, why can’t I have all three?
Rick (my friend) looked at me, smiled, and proceeded to explain how the world was not always as it seemed. Specifically, when producing apparel products (which is what we were doing), he taught me to consider everyone is trying to achieve the same end goal, that is, make a profit. So if we pushed the factory too hard for the absolute best price, something else had to give; either quality or delivery.
Consider a factory working to supply multiple customers, evaluating the costs and returns for each one; they may accept a low cost initially, but continue to work on adding new business and looking for ways to improve their performance and bottom line. So in the course of doing business, if they find another customer willing to pay a higher price, don’t be surprised to discover your production has mysteriously moved out a few weeks or more and now past your anticipated delivery date. You may have secured the best price, but it’s not going to do you much good if the product doesn’t show up, will it? The story continues, you except the delay, calculating the cost and potential loss of sales due to a later delivery, but feel the margins are good enough and you’ll be fine. But the factory doesn’t stop there; it continues to look for ways to improve it’s bottom line and finds even more customers to replace your business at higher margins. But they don’t want to give up your business, so out source the production to another smaller factory you don’t know about. Now the quality takes a hit, as the new factory didn’t quote the same specs and they also need to make a profit; so they look for cheaper materials or short cuts in production to cut costs and push out a product you receive late, and at a lessor quality…but, hey, you got the lowest price. So if you’re an optimist, you’ll be using all the profit you thought you were going to achieve to pay for the markdowns just to get rid of the product you actually received.
This happens in other areas of business as well, and not limited to factories. For example, during my time selecting store locations and negotiating leases, I found the same idea held true; and all too often, people on one end of a lease thought they were getting a great deal without carefully considering how. My dad taught me this too, as he invested his life in the management of commercial real estate, but I was able experience first hand when negotiating leases for stores around the country. I would find myself being hit from both sides; the management or owner I worked for would pound me to get a better price, as if the price were the ultimate victory in negotiating the deal, and the developer or landlord would be fighting to maintain their goals while carefully disguising how they buried the costs in the lease, creating a perception of a price that didn’t exist. Same idea, price, quality, delivery; pick two.
If you look in the market today, you see this with many of the larger retailers as well; they wield a great deal of leverage and push for the absolute best margins, forcing factories or businesses to trim every possible corner to meet their demands. These companies profess to driving better values for their customers, but ultimately, they are only degrading the production, lowering the quality, and creating false perceptions of value. I could probably draw a similar comparison if I looked at how our government runs, but I’ll save that for another post.
The real tragedy in not recognizing this reality is missing out on “good business deals” over a quest for the best deal. Most people I’ve met or worked with over the years bragging about how great a negotiator they were, more often we’re just throwing up the warning flag letting me know to watch out for delays and missed opportunities at a cost of satisfying their egos. The real lesson should be focus on what you want to accomplish and understand the costs; then decide, do you really want to succeed at business, or just in attempting based on false expectations. If the deal is a good one, everyone should be happy in the end and looking to for more.
Price, quality, delivery…pick two.