To most organizations, procurement is fundamentally a cost center. While this is the traditional perspective, what if we were to lay out an alternative case in which procurement could be viewed as a profit center as well? That’s exactly what we’re going to do in this article, from the specific perspective of industrial process instrumentation.
Procurement describes the business workflow of finding, negotiating, and purchasing goods and services that are consumed within a company or are resold to downstream customers. Normally, procurement professionals solve for cost factors such as purchase price and payment terms. To add profit-oriented benefits into this equation, we need to identify ways that purchasing instrumentation can drive increased revenue and gross margin. As luck would have it, many businesses already dabble on both sides of this equation, and with a little direct focus on integrating procurement into the profit-oriented business activities already taking place, they can begin to intentionally reap the rewards.
How Instrumentation Procurement Influences Profit Margins
In this section, we’ll list out several ways that strategic instrumentation procurement can directly influence a business’s profit basis. Whether a business uses the instruments that they procure in their internal process systems or incorporates them into the products that they sell, these examples showcase how instrumentation sourcing decisions ultimately add value to the business’s commercial offerings.
- Process Control Accuracy – No industrial process control system is 100% accurate, as all instruments, equipment, and logic functions experience fluctuations. Purchasing lower-grade instruments usually introduces higher variation and lower accuracy into a system, which equates to over-consuming raw materials, energy, and manpower. A business that invests in higher accuracy instrumentation can be presented as more efficient, less wasteful, and more sustainable, which end-users generally reward.
- Product Quality – While any two end-users may define product quality differently, they all tend to turn away from businesses that they deem to offer low quality when even marginally better alternatives are available. For process manufacturers, low quality might be the result of inconsistent batch operations, such as with slightly different color hues between paint batches. For OEMs, low quality might result from varying performance levels between identical systems, such as with water pump skids shutting off at different low-pressure points. In both cases, procuring higher-grade instruments can directly improve end product quality, which can attract more buyers away from lower-quality competitors.
- Documentation – Many OEMs and end-users make technical purchasing decisions heavily based on the level of support and documentation that they’ll receive with the purchase. For this reason, purchasing instrumentation that comes with thorough, easily digestible documentation can decrease maintenance costs and increase sales based on the instrument manufacturer’s high level of support for their products.
- Traceability – Just as with sustainability, many businesses are pushed to increase their traceability efforts by both regulators and end-users. Adding instruments into existing processes can provide data sources for traceability reports, and purchasing instruments with traceable sources can fit into a business’s wider compliance efforts. End-users favor these benefits, especially in the face of expanding foreign trade complexities that may cause knockdown effects involving the authenticity and quality of materials used in instrumentation.
- Strategic Vendor Partnerships – We’ve written before about how vendor-buyer relationships provide infinitely more value to both parties than normal transactional engagements, and this fact holds true for procurement aspects as well. When procurement agents and instrumentation suppliers work hand in hand, purchasers gain much deeper levels of support, competitive pricing, inventory availability, and early notification of new products pertinent to their projects. These benefits can be directly offered as their own value propositions to end users, generating more sales attention based on the total value offered by both companies.
- Customer Satisfaction – A happy customer is a repeat customer, and procurement agents should view instrumentation sourcing as one of many paths to keeping customers happy. Not all customers will purchase a product solely because of the instrumentation involved in its production, but all customers will notice product failures or shortcomings that may result from poor instrumentation selections. In this way, instrumentation can be considered a mission-critical element of a business’s total offerings that has a direct bearing on customer satisfaction and repeat business.
Pursuing Profit-Driven Procurement Practices
To zoom out a bit, how can businesses communicate the value that their instrumentation procurement practices provide to their overall market? Three suggestions:
- Competitive Advantage – Many OEMs, system integrators, and solution providers differentiate themselves based on the component partners that they team up with. In the same way that John Deere tractors are known for their partnership with Cummins Diesel Engines, many industrial businesses can gain a significant competitive advantage by teaming up with a respected, recognized instrumentation supplier. In turn, end-users will seek out that business over competitors because of the total value offered by their partnerships.
- Risk Mitigation – From a technical perspective, instrumentation directly correlates with risk in automated industrial systems. A business has many inherent costs that serve to offset risks, such as insurance premiums, backup system costs, maintenance costs, third-party service costs, and so on. When these costs are driven up by shortcomings on the automation front, procuring higher-quality instrumentation can drive them back down by directly mitigating risks at the component level. In this way, sound instrumentation procurement strategies can improve a business’s total risk profile, defending against losing profit margin to ongoing warranty, service, and insurance burdens.
- Supply Chain Resilience –Supply chains today are inherently volatile, and this volatility will continue for years to come thanks to inflation, restrictive trade policies, hampered logistics capacity, and high capital costs. Businesses that procure instrumentation frequently, in high volumes, or on a just-in-time basis are increasingly exposed to such supply chain turmoil. These businesses need ways to reinforce their supply chain to ensure that they can serve their customers’ needs, which makes their procurement practices themselves a potential solution to the problem. Procurement agents can exercise many options in this manner, from pre-purchasing to volume contracts, minimum inventory agreements to vendor-managed inventory, and so on. Altogether, the benefits of having a resilient instrumentation supply chain can be shared with end users eager to gain the business reliability it provides.
As a veteran-owned small business, Whitman Controls is dedicated to supplying premium quality, reliable, technologically advanced instrumentation for use in nearly any application. Our Bristol, CT manufacturing facility embodies over 40 years of engineering, fabrication, and customer service expertise, serving both end-user and manufacturing customers nationwide through direct and distribution channels.
Values drive us to provide the highest level of servant partnership that you can find. To discuss your applications or to learn more about our capabilities, please contact us at (800) 233-4401, via email at info@whitmancontrols.com, or online at www.whitmancontrols.com.