Tips for Avoiding Price Increases in Tight and Rising Markets

No one said saving money is easy. Otherwise, companies would have invested far more in procurement talent, processes and technology long before the recent boom of the past decade. But sometimes even more important than saving money is avoiding price increases and ensuring continuity of supply in tight commodity markets. Over on Buyer Analytics, Dave M. -- does anyone else wonder who the mysterious Mr. M really is? -- recently offered up a number of tips to organizations facing price increases. Among his tips, Dave recommends negotiating "favorable price adjustment terms" with suppliers and using "should cost modeling and value stream mapping" to better understand cost drivers.

To Dave's list, I would add the importance of developing a very detailed cost breakdown analysis for each category, supplier, and item / service. Understanding all of the cost drivers -- e.g., in a metals category, what percentage is raw material versus what is value added such as heat treating? -- can put sourcing teams in a much better position to negotiate for other price breaks even as the underlying commodity markets are rising. After all, in rising commodity markets, savings does not have always have to be elusive. It just needs to be found and implemented in more creative ways.

Jason Busch

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