There are times when you look at two quotations and the answer is obvious. Supplier A offers a price of $80 per unit. Supplier B quotes $92. But Supplier A wants freight on top of the unit price, a higher MOQ, payment in advance and a shorter warranty. When you add those terms up the lowest price per unit might be the highest cost for your purchase.
The way to test this is to list the charges you have and make a total cost worksheet before you conclude that one is the best offer. You should list the unit price, how many units the supplier requires you to buy, freight, tax, set-up cost, installation, any recurring charges or costs and so forth. You should also list any other conditions which could have an impact on the purchase even if you cannot easily attach a price to them such as lead time, payment terms, length of warranty, service requirements etc.
Minimum order quantity can impact the result very quickly. You might want to buy 100 units but the lowest cost supplier only wants to sell you if you buy 150 units. You need to compare the price for 150 units against buying exactly 100 units from another supplier. There is also the risk of having to store extra stock, tying up budget or making the stock obsolete if the spec changes. It is no use getting a good unit price if the terms for buying them are not going to meet your needs.
Look also closely at the delivery conditions, another supplier may charge you for freight, have a longer lead time, require you to pick up the stock or collect it from a warehouse which is some distance from you. Another supplier may provide delivery to the address of your choice and can confirm a delivery date. You might have to make work stop while you are waiting for delivery but you will not be able to attach a specific financial value for this as an individual. Record the impact on the work and ask the user to confirm if this lead time is OK.
Consider the impact of payment terms and service terms on an offer. An offer may require payment in advance before dispatch or it may allow you to pay after you receive the goods. This can change the commercial terms from a supplier’s perspective and change your risk level. Other terms may be offered such as a longer warranty, installation, training, replacement support or recurring fees which must be paid by you for service. This doesn’t mean automatically the most expensive supplier has the best offer but at least you will notice these in the comparison of the quotes rather than you find out after your purchase order has been placed.
So, a good supplier recommendation does not say here is the offer with the smallest number in the cost column. It says this is the cost which includes these elements, here are the assumptions we have, here is the comparison between offers and here is why we have chosen this option. It will not say the unit price for this option is lower as that no longer ends the conversation. It is just one item in a check list for quantity, freight, terms, lead time, compliance, risk and so forth.