This idea is being implemented within the automotive industry with considerable cost saving occuring for organizational buyers and increased profitability for sellers of both direct and indirect products and services. This idea is about fundementally changing the way organizations think about, buy and use the millions of dollars of goods and services to substantially impact their bottom line.

This idea is rather simple. That is, buyers to pay for what they need to produce what they sell based on the finished product or services they produce, not the delivery of the raw goods and services delivered to their facility. Using this approach, an exterior door manufacturer would pay their paint supplier a unit price for each door they actually paint, not a unit price for each gallon of paint delivered to their facility.

This changes the perspective of the supplier completely. Instead of sellers trying to sell more, sellers will want to use less. If the seller of paint is being paid for each door painted, they would certainly support painting 20 doors with each gallon of paint as compared to painting 10 doors. Using what I call "Buy the Result" purchasing model, the buyer only "buys the result" of what the supplier provides.

"Buy the Result" holds the supplier financially accountable and responsible for efficient use and application of thier product or service as it contributes to their customers final product. With payment based on the finished output of the buyer organizaton, the supplier will be very interested in helping their customer maximize the efficiency of their product and business processes.

The buying organization is also held accountable as this approach provides a Reimbursement Mechanism that allows the supplier to be reimbursed for actual and identified events and occurences that result in the waste or lost of thier product.

CURRENT BUYING MODELBuyers buy what they need based on a "unit" cost and ownership is trasfered to them at delivery. The sellers provide the buyer a "promise" of performance as it is the buyers responsibility to transform the product or service into their finished product.

For example, a company who manufactures exterior doors for the housing market purchases the paint from their supplier at a price per gallon. The supplier promises the product will perform if applied properly with the correct paint film thickness. It is the responsibility of the door manufacturer to apply the paint correctly and efficiently. If applied correctly, the door manufacturer should paint 5 doors for each gallon of paint it purchases.

Using our hypothetical exterior door manufacturer example above, the paint supplier expects the door manufacturer to paint 5 doors with each gallon of paint it provides at $10 per gallon based on a paint thickness of 4 mils. If the door manufactures only paints 3 doors with each gallon, the paint is not being applied efficiently and is being wasted. When this occurs, the paint manufacture actually benefits from the inefficient use and application of their product.

The buyer incurs an increased cost as well as they are using and spending more than what they had planned and were promised by the paint supplier.

BUY THE RESULT BUYING MODELBuyers buy what they need based on finished units produced by their organization. Ownership is transferred from the seller of the product or service at the end of their business process. The sellers provide the buyer with the "result" of what they provice as they are responsible for the use and application of what they sell.

Using our hypothetical exterior door manufacturer example above, the paint supplier pays the paint manufacturer $2 for every door painted. If the door manufactures only paints 3 doors with each gallon, the paint is being applied inefficiently and being wasted. However, the paint supplier is being paid $6 for each gallon and will be very interested in assisting the exterior door manufacturer in improving the way they apply and use the paint.

I have particpated in this buying approach as both a buyer and seller of indirect and direct materials within the automotive industry. I have seen the benefit of these programs for buyers and that include immediate reductions in material costs, elimination of inventory ownership, reduced environmental liabilities, improved manufacturing efficiency, etc.

I would suggest the greatest impact to the buyer organization is the change and improvement of their business process that occurs as the supplier becomes intimate to their organization to reduce the use of their product or service. After a period, the buyer organization changes under the insistance of the supplier organziation that impacts other parts of their business as well.

As a seller participating in this approach, I have seen increased market share as our competitors continue to offer the traditional approach and our customers enjoy a fixed cost per unit produced and the sharing of responsability of the performance of our product. More importantly, we have seen substantial profit margins occur as we have been able to use our expertise and knowledge to reduce the considerable waste of our products within our customers business processes.

I believe this purchasing / buying model could be adapted to many types of products and services for any organziation who transforms what they buy into what they sell.

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