“You know, we could buy this ,” I said.
“Do you want to?” she replied.
” It meets all of our specs ,” I offered.
“The kids will think we’re crazy, buying the first place we see,” said she. “But it beats going through 52 different houses like we did twenty years ago.”
We made a fair offer, and two hours after the open house ended, it was accepted. The kids, of course, were surprised. They didn’t know that we were even thinking about moving. But after some discussion, they all agreed we weren’t crazy. Four months later, the big house in Lexington that the five of them had grown up and out of was just great memories , at least as far as the Howe Family was concerned.
What our children also did not know was that Annie and I had spent most of our Valentine’s Day dinner five days earlier drawing up specifications along the lines of “If we were ever going to move, what would we be looking for?” This came three days after close neighborhood friends had introduced the condo concept to us by announcing that they were downsizing, “in advance of the baby boomers,” who likely would be bidding up condo prices very soon.
Nine years have passed and we haven’t second-guessed ourselves once. We knew what we wanted and what it was worth to us. Twenty-plus years of marriage will do that for you.
Last month I was reminded of this serendipitous decision when the owner of a client company announced to the management team that he had purchased an $80,000 piece of equipment without consulting all of us. For a long time, he said, he’d been looking for a good deal on this unit, and the manufacturer’s rep made the right proposal. No ROI analysis. No negotiation of price or terms. No plugging into the cash flow forecast to see how we’d pay for it. It was just “right,” based on his thirty years in the business.
I hope that he is right, and that it’s not the exception that proves the rule. Because Rule #1 in purchasing (now known as procurement) management is never go to market without a shopping list. In the case of capital equipment, the list should include the following:
- Minimum and maximum operating specifications;
- Price range vs. capacity;
- Special features;
- Time to deliver;
- Service availability and price;
- Analysis of other options;
- Reputation of vendor(s); and
- References on specific piece of equipment.
Rule #2 , which in this case was honored, is never accept the first price offered unless you know that there are availability issues. Very seldom is there just one source for a product or service: it’s the job of Procurement to generate multiple quotes and to push back on prices. [See sidebar.]
Rule #3 recognizes that effective buying involves selling: before you make a significant purchase, connect with a vendor’s salesperson. A written RFQ or RFP without a human contact gets un exceptional treatment. Having a salesperson on your side gives you an advocate for price, terms, expedited delivery, and problem-solving.
Rule #4 requires that you always use a written purchase order with printed company logo to document exactly what you have bought:
- Item number
- Description of product or service
- Price or fee, including tax
- Delivery charges with method of shipping
- Delivery date
- Ship-to address
- Bill-to address
- Purchase order number and date issued
Rule #5 says that you pay for nothing without documentation to prove that it was received as ordered. With product purchases, this means verifying quantity and condition upon delivery-matching shipping documents against the original P.O.
For the Accounts Payable department, making certain that nothing gets paid without checking the invoice against the P.O. and the receiving document is basic. The best A/P managers, moreover, initiate the next step themselves-calling the vendor and/or shipper immediately to question any charges or conditions that were not part of the deal. The longer this remains unchallenged, the harder it is to resolve.
Rule #6 requires you to eliminate independent purchasing activity and decision-making, even if it means pushing back on the owner. Review expenses vs. the budget every month to identify where your key variances lie, and hold unauthorized spenders accountable.
At the risk of oversimplifying, these purchasing principles apply almost as well personally as they do professionally. For the Waltham condo, we had the specs, and we paid for the value to us. The availability of our time to shop was limited, and the market for big homes in Lexington was peaking (though it turned out that we were 18 months early on that). The Purchase and Sale Agreement was an effective P.O., and our due diligence eliminated surprises after the deal closed.
So hopefully, reading this, our kids will continue to agree that we weren’t crazy at all, now that they have the perspective of being in the housing market themselves. Don’t forget those spec sheets, you guys!
Health care is a major budget item for every business owner. In Massachusetts, where the Legislature has mandated that all residents age 18 or over are required to have health insurance as of July 1, 2007, missteps in compliance could be very expensive.
According to Littler Mendelson, P.C., “The National Employment & Labor Law Firm” –
“With some exceptions, individuals [in Mass.] who cannot show proof of health insurance coverage on their 2007 state income tax return will lose their personal income tax exemption for 2007. When filing a state income tax return for 2008 and beyond, an individual without health insurance coverage will be fined for each month he or she is without coverage…
“Employers with 11 or more full-time equivalent employees in Massachusetts must make ‘a fair and reasonable’ [term is defined] contribution to the cost of their full-time employees’ health insurance. Employers that fail to do so will be required to pay an annual fee of up to $295 per full-time employee [that is, for every employee, insured or not].
“To help make health insurance more affordable, employers with 11 or more full-time equivalent employees in the Commonwealth are required to have a Section 125 cafeteria plan as of July 1, 2007 .
“Each employee of a Massachusetts employer with more than 10 employees must sign an Employee Health Insurance Responsibility Disclosure [HIRD] Form if he or she: (a) declines to enroll in an employer- sponsored health plan or (b) declines to participate in the employer’s Section 125 plan. When completing the form, the employee must indicate whether he or she has an alternative source of insurance coverage. Employers are not subject to penalties if their employees decline insurance coverage or decline to participate in a Section 125 plan.”
– Quoted from the Littler Mendelson Newsletter , March, 2007 ; written by Martha M. Walz, who is Of Counsel in L-M’s Boston office. She is also a member of the Massachusetts House of Representatives and has been intimately involved in drafting the health care legislation.
Draining the Swamp
Long before the advent of Staples and Office Depot, the main source of office products for purchasing managers was NEBS (New England Business Service), even as the main source of industrial products was the Thomas Register. Like Staples and Office Depot, the two older institutions have morphed into useful web presences at www. nebs.com and www.thomasnet.com .
As recommended by Dan Kehrer of Business.com, other helpful business supply resources beyond these four are:
Betterbuys.com : “…office equipment purchasing guides are $29-$39 each by product category-and worth every penny for the information they deliver to help you make smart choices.”
BuyerZone.com : “…completely free and hard to beat for its extensive supplier network and easy-to- use request for quote system.”
Dovebid.com : for “specialized equipment or technology for manufacturing or other tasks, this site helps major corporations, financial institutions and government agencies auction off items they no longer need.”
GoWholesale.com : “…a site that offers products in numerous consumer categories at wholesale prices.”