We have all been there. You are looking at two supplier bids. One is a well-known, stable partner with a fair market rate. The other is a new entrant promising to slash your costs by 20% immediately.
On a spreadsheet, the choice looks obvious. That 20% saving is a "quick win." It’s a bonus for the procurement manager, a happy slide for the CFO, and a high-five in the quarterly meeting.
But what happens six months later?
In the world of supply chains and procurement, the sticker price is rarely the final price. While buying cheap can sometimes be acceptable, for standard commodities or low-risk tail spend, making it the default strategy is often a one-way ticket to higher long-term costs and ethical blind spots.
Here is why a well-managed procurement process, grounded in strong Supplier Relationship Management (SRM) and ethical governance, is the key to a winning strategy.
The Iceberg of Cost: Price vs. TCO
The biggest mistake businesses make is confusing "price" with "cost."
The price is what you pay to get the goods to your dock. The Total Cost of Ownership (TCO) is what you pay to actually use, maintain, and eventually dispose of those goods. When you buy "cheap," you often inherit hidden costs that sit below the waterline, much like an iceberg.
According to the Institute for Supply Management (ISM), understanding these lifecycle costs—like poor quality, higher rejection rates, and logistics drag—is the only way to make an apples-to-apples comparison. A 10% saving up front is meaningless if it causes a 15% increase in operational waste.
The Ethical Price Tag
"Cheap" does not exist in a vacuum. If a price seems too good to be true, it often means the cost is being absorbed somewhere else, usually by the environment or vulnerable workers.
Accepting a rock-bottom bid without due diligence can expose your brand to massive reputational damage. Are they dumping waste illegally? Are they using forced labor?
Professional procurement isn't just about buying; it is about protection. Policies regarding Modern Slavery, ESG (Environmental, Social, and Governance), and ethical sourcing ensure that your "savings" don't turn into a PR nightmare tomorrow.
SRM: Turning Suppliers into Partners
This is where the magic happens. A transactional buyer beats a supplier down on price until the margins are razor-thin. A strategic procurement leader uses Supplier Relationship Management (SRM) to build a partnership.
When you squeeze a supplier dry, they have zero incentive to help you. They won't share their best ideas, and they certainly won't prioritise you during a shortage.
However, when you invest in SRM, you unlock Supplier Innovation. Suppliers are the experts in their field; they know the new technologies and process improvements before you do. By collaborating, you encourage them to bring those ideas to you first. This drives Continuous Improvement—finding ways to take cost out of the entire supply chain together, rather than just shifting costs back and forth.
McKinsey describes this as a shift toward "Procurement 5.0," where the goal is creating value through deep collaboration rather than just tactical purchasing.
Why "Process" Isn't Just Red Tape
To the outsider, procurement processes, vendor qualification, compliance checks, QBRs (Quarterly Business Reviews), can feel like bureaucracy.
But these processes are the vehicle for collaboration. They provide the structure needed to measure performance, discuss ethics, and brainstorm innovations.
Deloitte’s Chief Procurement Officer Survey emphasizes that top-performing organizations use these processes to become "Orchestrators of Value." They use policy not to slow things down, but to ensure that every dollar spent aligns with the company’s long-term innovation and ethical goals.
Conclusion: The "Good" Cheap vs. The "Bad" Cheap
Yes, there is a time and place to buy cheap. If you are buying standard office pens, you probably don’t need a strategic innovation partnership. But knowing the difference requires data, insight, and a robust process.
GEP notes that using TCO and spending analytics is what separates the pros from the amateurs. It allows you to identify where the real value lies, not just in the price tag, but in the innovation, resilience, and ethical standing of your supply base.
Don't let the allure of a quick win blind you to reality. Invest in your procurement processes, trust your supply chain experts, and remember:
You get what you pay for.