The fourth principal for management provided by Deming was Don't Award Business on the basis of Price. 2
You would see a number of places where if you want to buy something you ask for three bids and then you 3
award that particular item to the lowest bidder. 4
That's the general convention 5
even today, Deming was totally against that. 6
His point was that we should not be a awarding business just based on the price tag. 7
Rather it should be on the minimum total cost because the price is the one thing which you pay straight 8
away. 9
But then on top of that if we to do some repair, if you are to do some re-work, if you have to do some extra 10
things on top of that. 11
You need to consider all those aspects when you are awarding something not just on that single price 12
tag that whichever is providing lowest you buy from that. You need to consider the lifetime cost of that 13
item which you are buying. 14
So that was one part in this. 15
The second part here is that award to a single supplier. 16
Many people did not like this or did not really understood this aspect of management that you don't buy 17
from multiple sources because there is a general psychology. 18
Like if I want to buy one product, I am manufacturing some part and let's say I want buy nuts and bolts for 19
that which I will use for assembling that. Me as a manufacturer will think that I need to buy from three 20
or four different places so that these people compete against each other. 21
I get the lowest price. 22
But one thing which we should remember here is that when you are buying from three or four different 23
places just because why you are buying from the three four places because you just want to be sure that if 24
something happens to one supplier you still have your supply. 25
That was the reason to have multiple suppliers. 26
One thing is that you thought that you will get a consistent supply even if there is the problem with the one 27
supplier. 28
The second was that you would get things cheaper but what happens is that when you buy product from multiple 29
sources one thing you are doing is you are introducing too much of the variation into your processes 30
because now nuts and bolts provided by three different suppliers might have different dimensions. 31
Different levels of controls so that way I'm introducing inconsistency in my product. 32
So that was one aspect of that, second aspect which Demming proposed was that if you're buying from a 33
single supplier then you can have a long term relationship with that particular supplier, long term relationship 34
means you can really go into the production of that particular supplier. 35
See how they are controlling that if you want to change something you can change that because that's 36
a long term relationship not just a one time purchase because if you're buying from one supplier that 37
will be really happy to change whatever you need to make you happy because you're buying in bulk 38
also now. 39
So if you're buying in bulk you get things cheaper as well. 40
So there are a number of benefits if you are buying one product from one supplier rather than looking 41
for multiple suppliers who are competing against each other. 42
And when they compete against each other definitely they will be compromising on quality as well because 43
if they are competing on price somewhere they will start cutting corners. 44
So instead of going into that price war, instead of going into multiple suppliers look for a single supplier 45
for each product. 46
With that supplier establish a long term relationship so that you get a consistent product at a bulk 47
rate. 48
So this was Principle Number four provided by Dr. Deming.