Avoid Buyer's Remorse — Read the Blog!

It's rare that a new blog comes out of the starting gate with such momentum of ideas in just a couple of initial posts. But such is the case with the new blog Buyer's Remorse, authored by Lloyd Phillip. In his kick-off post, Phillip writes that "This blog is intended to be slightly different from most purchasing blogs. I intend to cover topics of purchasing strategies, commodity prices, benchmark indexes, cost reduction and how you can weave them all together to potentially prevent buyer's remorse." Let's hope he sticks with it, as his initial posts are right on the money. In them, Phillips investigates escalation clause tools and how they can reduce the need for time-consuming re-sourcing processes (vs. renegotiation with incumbents).

Here, Phillip suggests that keeping track of indexes like PPI and CPI are important. But so is understanding how they differ. The difference between the two is that the PPI "is a family of indexes that measures the average change over time in the selling prices received by domestic producers of goods and services" from the perspective of the seller. In contrast, the CPI measures "price change from the purchaser's perspective. Sellers' and purchasers' prices may differ due to government subsidies, sales and excise taxes, and distribution costs."

In Phillip's view, "all these indices are highly correlated and may help you figure areas of value where you and your supplier can lock in prices, save money on indirect goods or increase profit margins on products derived from raw materials." But unfortunately, I suspect that few procurement and operations professionals keep close tabs on pricing indexes that can be used as the basis of setting contracts, especially macro indexes such as PPI and CPI. Let's hope that his efforts -- and those of others including Metal Miner -- educate the market about the potential for savings and risk reduction that pricing indexes can bring.

- Jason Busch

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