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Procurement Training ~ Supplier Nibbling

Procurement Training
Look Out For Supplier Nibbling!

I took a long weekend and went to Carmel and Monterey with my wife and brother in law.  I just love the California Ocean.

I have to admit though; it was pretty hard shifting from 62 ° weather back to 92 ° when we got home to Sacramento.

Anyways, we stopped at the Strybing Arboretum in San Francisco on the way back.  It’s been free my whole life and now they charge $7 admission.

Also, parking in SF used to always be free on Sundays and now Sundays cost money too.

Finally, a few years ago, a 3 – 4% healthcare surcharge has been added to most San Francisco restaurants.

My dad told me that he remembers when there was a 25 cent toll charge introduced on the BayBridge in the 1970’s, and it was announced as being “only temporary”.

My intention is not to complain, I still love SF and these costs won’t deter me from enjoying it.

My intent is to convey that it’s easy to miss costs when they come in little bunches from different places.   You’ll hear people complain a lot more about a sales tax increase than about any of these other costs.

This reminded me of what suppliers do as a negotiation strategy:  “nibbling” is what they call it.  They find little ways that fall below purchasing’s radar to keep increasing their financial gain from a transaction.

Suppliers are trained how to do this really well.  They keep your attention on price and they nibble elsewhere, both during and especially after negotiations.  You think you’re done negotiating, and from their perspective, it never really ends.

Nibbling can be done in the form of charging you more for lesser items (bells and whistles) that you may not be focusing, or charging you for something that would normally come free.  We’ve all experienced it.  I remember once when a software supplier tried to charge us maintenance fees for our backup servers.  Nobody pays maintenance for software on backup servers, but it was an attempt on their part to nibble.

Suppliers nibble in different ways.  They can slip the nibbling charges into other parts of their proposal, separate from their main pricing proposal, hoping you won’t see it.  They can introduce it as a concession (“ok, we’ll do that for you, but how about you guys cover ________”).

Or they can introduce it later, through phone call or email agreements with the end customer, who may view it as a benign concession that does not affect purchase price.

My wife attended a timeshare presentation recently in Cabo San Lucas, Mexico.  Honestly, I’d rather have a highly invasive proctology exam than go through one of those. I warned her, but sometimes you just have to experience things on your own.   Based on her subsequent assessment, it’s probably the last one she’ll attend as well.

In any event, those presentations are a great example of supplier nibbling in action.  They talk to you about the cost of the timeshare, but they spend little time talking about maintenance and cleaning costs that get allocated to you.  They won’t even show you the contract Ts and Cs unless you’ve already agreed to buy one (if you don’t believe me – ask them for a copy of their contract during a timeshare pitch – they won’t give it).

I have nothing against timeshares or timeshare owners, I’m just pointing out that this is another business model where part of the revenue stream is generated through creative nibbling. You have to really be paying attention or you might miss a big TCO component.

Are you anticipating and recognizing supplier nibbling tactics?  Are you capturing the financial consequences of nibbling in your negotiation cost models?  Do you scour supplier RFX responses for nibbling?  Have you educated your customers on supplier post-contract nibbling practices? 

It’s our job as purchasing professionals to have a mastery of TCO.  A big part of that is to make sure there is no nibbling going on by the supplier.  If we do agree to some ancillary charge, it has to be a conscious decision and it has be part of a deliberate TCO strategy on purchasing’s part.

If you have any nibbling stories, please post them here, we’d love to hear them.