End the practice of awarding business on the basis of price tag along. Instead, minimize total cost. Move toward a single supplier for any one item, on a long-term relationship of loyalty and trust. — Edwards Deming

Most American business people find it nearly impossible to understand Edwards Deming’s admonition to not buy on price alone. I learned from my father, who grew up in a predominantly Japanese neighborhood in Honolulu, that there was another approach: Do business with people you know and trust, and your total cost will be lowest.

This remains a difficult concept to understand if you’ve never seen it in action, so let me tell a story that illustrates the idea.

The company I worked for in Hawaii had a long-time customer that had subcontracted some work on a multi-million-dollar government job being run by a large mainland contractor. As happens fairly often, especially on government jobs run by mainland contractors, the general contractor was very slow to pay the subs — so slow in this case that our customer was in very dire financial straits.

To add to the problems of our customer, a small business run by a husband and wife team, the husband, Leonard, was deathly ill, waiting for a heart transplant because of a childhood case of scarlet fever. Jeannie, Leonard’s wife, was scheduling and running the crews, managing the finances, bidding new jobs, and generally running the business. These were people who were on the verge of being completely overwhelmed, and they were way overdue paying us because they were way overdue being paid.

The normal American way of doing things would have been for us to sue our customer, forcing them to sue the general contractor.

But that isn’t how I was raised. Somehow I learned from my father that you don’t embarrass friends like Leonard and Jeannie by suing them. You don’t sue people who, through no fault of their own, are already hurting. And you don’t sue people you know and trust. You find another way. (Don’t get me wrong. If you screw with me, I’ll sue the hell out of you.)

Here’s what I did instead: I called Jeannie and told her I wanted my attorney to go to work for her, to get her paid.

I made it clear that I completely trusted Jeannie to pay me as soon as she got paid, so my only interest was in seeing that she got paid. I asked her to call my attorney, or to let me know and I would ask my attorney to call her. I made it clear that it wouldn’t cost her anything, that I would pay all the legal bills if it became for necessary for Jeannie to sue the general contractor. I just needed Jeannie’s cooperation.

Offering to pay my attorney to work for somebody I had a legal right to sue may seem like a strange thing to do, but I thought it made really good business sense. And it strikes me as a sort of old-time Japanese face-saving thing to do.

Now, my attorney was very good, very wise attorney, one of the best in the state. He was accustomed to dealing with large businesses that were playing stupid games like not paying their bills. He was probably better than any attorney that Jeannie could have afforded.

I could see no point in paying my attorney to sue Jeannie just so Jeannie could pay another, lesser, attorney to sue the general contractor. Why not just drop the middle man and have my attorney sue the general directly on behalf of my customer? It was going to cost me money either way; why create an additional cost for my customer?

There was a potential down-side to this strategy. If, in the end, we had been forced to sue Jeannie, my attorney would have been disqualified from taking the case because he had already worked for both of us. Since I knew and trusted Leonard and Jeannie, I thought it was extremely unlikely that we would end up suing them, so I made the offer.

So what happened? I’m not sure, but a week or so later I got a check in the mail. If my attorney had gotten Jeannie paid, the attorney-client privilege would have prevented him from telling me.

But surely I could look at any bill I received from him and deduce what had happened? Well, not really.

The thing is, many years before, my father had introduced this smart young attorney to a large land developer, and the attorney had spent years working on various complex projects for the developer, and had made a great deal of money and built an important reputation when many other young attorneys were struggling. Sometimes, apparently out of lasting gratitude to my father, the attorney simply didn’t send me a bill. I couldn’t count on it, but it certainly happened.

Here’s what I could guess happened: I suppose Jeannie called my attorney, who got some information from her.

Now, under federal bankruptcy laws, if a debtor (a general contractor, for instance) prefers (that is, pays) one supplier over another, that debtor is, by definition, bankrupt. Under federal law, it’s also illegal for a contractor on a federally-funded job to not pay the subcontractors. My attorney knew this, as did I. In all likelihood the general contractor’s attorney knew it as well. It’s a bit more complex than this, but these are some of the tools one has to work with when dealing with a recalcitrant contractor.

I suppose my attorney, whom everybody seemed to know, knew the local attorney for the general contractor, or perhaps the corporate counsel, and knew the general contractor had a habit of withholding payment to subcontractors until they squealed long enough and in the right way.

I could picture my attorney calling the other attorney and telling him that he was sure the “oversight” of the failure to pay Jeannie could be rectified quickly so my attorney wouldn’t have to file a complaint with the Corps of Engineers, which would mean expensive and time-consuming problems for the general contractor. What’s more, if the contractor was so illiquid they couldn’t pay Jeannie, my attorney would, of course, want to be first in line in the bankruptcy court….

Such an approach would take perhaps 15 minutes and would account for the check showing up a few days later. What’s more, I suspect it wasn’t worth his time to send me a bill. And it saved thousands of dollars in legal and court fees.

While this all strikes me as a very Japanese way of getting things done, none of the people involved on my end of this situation were of Japanese descent. However, Japanese sensibilities were once very common in Hawaii and, outside of interactions with people from the mainland, I believe this would have once been considered a fairly normal way to get things done. Of course, if they had been all local companies, it wouldn’t be common to run into such problems, although it wouldn’t be unheard of.

I hope this helps to illustrate how one avoids buying on price alone. The key is to do business with people you know and trust, and work the system based on that knowledge and trust. Very often, it results in the lowest cost.