Ben Riensche has learned many best practices by serving on local boards and corporate councils. One nugget that is helping him be a low-cost producer is the procurement strategy of a request for quotation (RFQ) for his farm inputs.
“You take every business relationship you have and put it up for quotes,” says Riensche, owner and manager of Blue Diamond Farming Company in Jesup, Iowa. “You tell your suppliers what you bought last year, what your needs will be for upcoming year, and to please provide you a quote. You might be surprised what you can get offered from a competitive vendor.”
This mentality switch from simply purchasing inputs to procuring them will be a key in surviving tight profit margins, says Mike Boehlje, ag economist at Purdue University. By using bid sheets for inputs that include multiple components, such as product performance, bundling of services and delivery timeliness, farmers can evaluate the value proposition of a product or supplier.
“Certainly, price is a critical component of the purchase decision,” he says. “But there is much more to it. Sometimes it’s helpful to have a frank discussion with suppliers to understand the cost structure behind an offer. This conversation may lead to creative methods for reducing supplier cost that could be translated into savings for the buyer.”
This process will require extra homework on your end as you evaluate the multiple bids and ensure you are comparing apples to apples with products. It will also likely change the conversation with your retailers and suppliers. “Even if I have a favorite salesperson, I tell him or her, ‘You have to come in with an idea of how to increase my revenue or cut my costs,’” Riensche says.
Obviously, good rapport with suppliers provides many benefits beyond a single input transaction. “A strong relationship may open the door for cost savings in other parts of the business,” Boehlje says. “For example, a supplier may have less bargaining room for a single product than he or she would if more than one product is purchased.”
Share with your landlords that you are using this bid strategy to lower your cost of production, Riensche says. “It is a good bargaining chip with landlords when you can say you’ve found a way to buy your chemicals, seed and fertilizer for 20% less,” he says. “You say, ‘I’ve asked everybody else to come down, now let’s talk about my rent price.’” TP
Items for Your Input Specification Sheet
Price is one of several critical components of any input purchase decision, says Mike Boehlje, ag economist at Purdue University. Have your suppliers detail their offerings for categories such as:
1. Product Performance: Provide evidence or documentation for how the product is enhancing or protecting yields.
2. Product Price: List the net price, which includes transportation and shipping charges and service fees.
3. Quantity or Volume Discount: Include any price discounts or service fee reductions based on quantity purchased or bundling with other inputs.
4. Local Contact: Name and contact information of the specific person to contact if problems occur with the product.
5. Application Services: Cost and timing of any services.
6. Financing Terms: Include the financing or credit terms offered, such as cash discounts, interest rates, repayment terms and the approval process.
7. Technical Support: Detail the technical support provided, as well as who and how to contact with questions concerning product performance.
8. Information Services: Availability and provider of information or data analysis services, including fees charged for such services and contact person.
Download an input specification sheet from Purdue University that features a list of 15 categories to consider.