In today’s competitive market retailers are searching for new ways to evaluate their venders and cut costs. An increasingly popular way for facility managers to evaluate and select HVAC contractors is by analyzing the average invoice price of the service calls performed by a specific contractor. Contractors are then selected based on the lowest average price of the invoices. While on the surface this may appear to be a legitimate form of evaluation, the information can be deceiving and in most cases when compared to a total cost model is more costly to the customer in the long run.
This article will examine some of the pitfalls of evaluation by lowest average invoice pricing and why it may not be the most cost effective way to choose and evaluate an HVAC contractor.
Contractor is aware he is being evaluated by lowest average invoice:
Many times if an HVAC service provider is aware that lowest average invoice is being used as a form of evaluation, they may be inclined to make multiple service calls instead of thoroughly inspecting the source of the problem and making the proper repair all at once. Symptoms of the problem may be addressed with a short term fix approach with a plan to return at a later date to address the actual problem. This allows a major repair such as the cost of a bad compressor to be averaged over several visits, thus lowering the average invoice amount while increasing the amount of visits and the total amount spent on that unit.
According to Joe Sandor Professor of Supply Management at Michigan State University “when it comes to building solid relationships with suppliers, what gets measured gets done.”
Managers should ask themselves…
What am I measuring, and do the results coincide with my departmental and corporate goals. If we analyze the lowest average invoice scenario we often find that the results produced are diametrically opposed to the goals of the organization which in most cases is to repair the problem at the lowest total cost to the company.
Source: What gets measured, gets done; Executive Briefing — Michigan State University; 2010.
