Five out of four customers said … be wary of numbers
Don’t worry: This is not going to be an article on math. I’m not going to tell you that addition of positive integers is commutative (whatever that means), nor am I going to discuss the multiplication of numerators and denominators. I want to focus on what numbers mean to you.
In a bid situation, you establish your low bidders in rank order. There are few things in life that make purchasing professionals happier than having all of their bid prices in a nice cluster within 2 to 5 percent of each other. That indicates that your bids truly represent market value.
But what makes one bidder’s price lower than the others? Is it because the bidder is taking a lower profit? Is the bidder’s overhead less? Does the bidder have less or inferior material? Is the bidder’s material outdated? Are the bidder’s transportation costs lower?
There are reasons for numbers being lower and higher than others, and your job is to be able to ask the questions to find out why.
What if an error was made in submitting a bid? That would affect your bid price, and, in most cases, create a special situation for you. You can’t accept a bid that was made in error without certain checks to assure yourself of expectation of performance. There are facts to be checked, assurances to be given and accepted, and –most likely – legal papers to be processed before you can proceed.
Even with an error, you, as a professional, want to know why and how the error occurred. Was it a misreading of a price list? Was a component of cost – such as materials or transportation – left out? Or was it a simple mistake? A professional has to know this so an intelligent decision as to how to proceed can be made.
Mark Twain and Winston Churchill had serious doubts about statistics. If I read in today’s paper that everyone who drinks water is eventually doomed, I’m calling my lawyer and updating my will. Does it affect me? Yes! Am I concerned? NO! It’s a misuse of statistics designed to have a particular reaction upon me.
The next time you read a statistic that might have an impact on the way you do business, look a bit deeper and ask some questions before you draw your conclusion.
Was a small, biased sample used? (Example: “Four out of five of our customers surveyed said … ”)
Was a self-selecting population used instead of a broader base? (Example: “Ninety percent of people who do business with us … ”) Were obscure or vague definitions used? (Example: “Eighty percent of people who may buy a widget may buy ours.”)
Look at the scale of magnitude that is being used. If there is a jump in numbers from two to three, that’s a 50 percent increase. In reality, the increase is rather small. Whenever percentage changes are used to examine changes in small values, large-percentage changes can result. I truly do not understand claims that one number is over 100 percent higher than another. (Example: “Our product works 300 percent better than our competition’s.”) Maybe in some universe you can mathematically have more than 100 percent, but you can’t have it linguistically.
Question the numbers and statistics that are presented to you. Make sure that you understand the numbers and that you have the confidence to repeat them with authority. Make sure that you know their component parts; if there are gaps, find the answers.
Getting your arms around key numbers and statistics will make you a better professional and inspire others to have confidence in your abilities. Numbers – and how you handle them – are a reflection of you, your organization and, in a very real sense, your profession.
Frederick Marks, CPPO, VCO, is a retired purchasing officer who has held positions as a supervising buyer for the Port Authority of New York and New Jersey as well as director of material management for Northern Virginia Community College. Contact Marks at [email protected].