At times, seeking a lower price can require one to compromise on quality.  This can be an acceptable tradeoff.  Unacceptable quality for one customer may meet another customer’s needs.  This is one reason that it is so important to understand your needs when negotiating any relationship.  This is equally true whether you are negotiating from a supplier’s perspective or on behalf of a customer.

Example

Suppose that a computer manufacturer has 1 defective computer for every 100 manufactured. 

In a large operation that had storage space for 5 or 10 extra computers, this might be acceptable.  Of course, the operation should consider replacements and maintenance in assessing the situation. 

In a remote operation or if computers were supporting real time stock or commodities trading, this might be unacceptable even with backup. 

Questions

There are a variety of questions that you may want to understand in order to decide whether it is appropriate to compromise on quality.  These questions could include: 

1. How will the product or service be used?
2. What parameters, constraints, and timelines relate to the manner in which the product or service is used?
3. What would a quality defect mean for your business?
4. What resources will be expended dealing with a quality defect, if one occurs?
5. Are you willing to accept the risks regarding quality in order to receive the lower price?

Key Points

Before trading quality for price, make certain that the risk has been identified so that you and your clients understand the pros and the cons associated with the proposed approach. 

Price may not reflect the costs that would be incurred if the products or services are defective.  

Consider your remediation costs and whether the defect would hurt your relationships with your customers.   

Considerations

Identify possible solutions in case a problem arises.  At times,  having replacement equipment available is an acceptable alternative.  If you opt for this approach, make sure that you consider:

1. How much replacement equipment is needed
2. Where the replacement equipment will be stored
3. The amount of effort and time that will be required to set up the replacement equipment
4. Whether resources will be available to set up the replacement equipment
5. Maintenance costs over the life of the equipment

There are instances where it makes sense to compromise on quality to control costs.  There are also cases where this is not a good tradeoff to make.  

Filed by Coleen Davis at 5:33 pm under Negotiations, Solving Problems, Sourcing