Published Chuck Miller, The Market Element on February 26, 2015
Confessions of an Economic Buyer: Justifying the New Gas Chromatography Detector
Imagine, you are now the proud owner of a new gas chromatography detector! After months of developing a comprehensive business case, fighting for budget, and making sacrifices, senior management finally approves your request. Now with business matters aside, you can proceed with furthering your scientific objectives, improving your lab, and all is well in the world again.
Unfortunately for many scientists, the aforementioned scenario is more often the exception than the reality.
The annual budgeting and procurement process evokes anxiety, confrontation, disappointment, and is ripe with rejection and shallow future promises of “getting your instrument in the next budget cycle”. As a former economic buyer, I am quite familiar with the challenging task of balancing the needs of scientific colleagues with company budgetary constraints. Of course, it would be great to approve every procurement request. But alas, rejection is a very common, and all-to-often inevitable occurrence.
Making the Business Case for a GC Detector Purchase
As I reflect back on numerous failed procurement requests, several positive and negative themes prevail. On the positive side, most business cases do a good job explaining the quantitative and qualitative benefits of the potential purchase. Typically, the economic buyer trusts the sophisticated insights of scientific staff and relies heavily upon their knowledge and understanding of what the future benefits for the company will be.
Often the bigger challenge involves developing a compelling business case for the purchase. Much like scientists, economic buyers have their own unique language, which is predicated on Return on Investment (ROI), Indirect Costs, Direct Costs, and Total Cost of Ownership (TCO). The goal of every economic buyer is to make sure all business cases pass the proverbial ‘litmus test’ on these primary financial measurements. Failure to develop a compelling financial model for your business case will most likely result in a rejection. In addition to building out the financial model, it is equally important to compare the results with other comparable products. This comparative modeling will help further build the case for your recommended purchase. Even if your suggestion is more expensive than the alternative, at least you can make a justification for the higher price with associated benefits, such as long-term TCO.
The Economic Benefits of a VGA-100 vs. Mass Spectrometer
With these best practices for building a compelling financial business case in mind, the VUV Analytics team recently undertook a total cost of ownership exercise comparing our VGA-100 detector to mass spectrometers which provide comparable GC detection capabilities (Single and Triple Quad). In this TCO model, we took into consideration the Manufacturers Suggested Retail Price (MSRP), Direct Costs (Consumables, Labor Skill, Power, Service Warranty, Maintenance, and Unit Utilization etc.), Indirect Costs (Administrative Overhead), and Opportunity Cost (Estimated Downtime). Other cost drivers were intentionally left out of our TCO model, due to the complexity of building accurate cost assumptions. These omitted costs may include direct calibration costs, product losses associated with undetected calibration errors, yield gains from reduced alpha and beta risks associated with improved measurement reproducibility, and yield gains from faster actionable data output. The end result of this exercise further proved our theory that the VGA-100 has a distinct and measurable advantage over the competition, with an approximately 16% – 32% lower TCO than comparable GC detectors on the market!
Speaking Science and Business
This real life example is intended to highlight the importance of building a business case that speaks the language of both the scientists and economic buyers involved. Too often the financial justification is a short fall in otherwise compelling business cases. Don’t let another year go by and miss out on another budget cycle. Take the time to really understand the cost drivers for your next purchase. By performing this due diligence and developing a realistic TCO model, you will dramatically improve your chances of getting that much desired new instrument for your laboratory. If you would like to see the TCO model we created, please contact Paul Johnson (paul.johnson@VUVanalytics.com) and he will be glad to share the results with you!