A New Spend Matters Perspective: Using Pricing Indexes to Save $$$

Just as the commodity market meltdown began in the fall of 2008, I started work on a Spend Matters Perspective that I've finally wrapped up. In what ended up being a rather succinct three-page analysis, I took it upon myself to examine how and why companies can benefit from using global pricing indexes in their sourcing activities. As part of this Spend Matters Perspective, I offer a range of detailed case examples of how companies can use pricing indexes to save money and reduce risk. These include how a company might seek to tie a contract to an index to create greater transparency, using an index to establish formula pricing or to deploy price escalator/de-escalator clauses.

Other detailed examples it explores include how an organization can use an index to monitor regional global pricing to spot arbitrage opportunities or to change or rebalance a category in different geographies based on regional price variances. I also explain how companies can use global pricing indexes to discover whether or not global suppliers are telling the complete truth in attempting to pass along price increases (or whether they're passing along decreases at the speed with which the market falls). Overall I hope it will prove a useful reference for companies looking to gain greater visibility, control and results from their global sourcing efforts, regardless of the commodities that make up the parts or components that they're buying.

In today's market, pricing indexes can often save manufacturers a small fortune if they can tie their contracting to underlying raw material prices. I've seen first hand over half a dozen examples in recent months where companies have been able to negotiate six or seven figures in value-added savings by using global pricing indexes in their contracting. And I've also seen pricing indexes used to keep suppliers honest as the market falls. This Spend Matters Perspective was sponsored by MetalMiner Indx (SM), a free offering provided by Aptium Global, inc. who bills this service as providing "procurement organizations the sourcing intelligence they need to better manage total cost across a range of raw and semi-finished metals. Updated daily with prices for 15 different types of metals in multiple international markets (e.g., China, India and Japan), the IndX provides the global intelligence needed to reduce both cost and risk while enhancing procurement performance."

In full disclosure, I have a financial interest in MetalMiner Indx given that I am married to one of its co-founders.

Jason Busch

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