Indirect Materials Pricing Trends and Forecast (Part 1)

At Commodity EDGE last week, I was drafted to present a short presentation on indirect materials trends and pricing forecasts. Given that I haven't actually been in the market for indirect materials for a decade -- and back then, I was just a consultant -- I decided to reach out to some experts in the area for their input. Of those I spoke to, DSSI's Larry Korak provided a range of invaluable observations and commentary that I leveraged as the basis of the MRO portion of the presentation (which we'll get to in more detail in Part 2 of this post). Others were helpful as well, but given some sensitivity around various categories and markets, I'll share their input without referencing names (but thank you to those who are reading this who contributed).

In my talk, I began by sharing some dynamics around office products, courtesy of one of the foremost experts in the market (from a range of angles: leveraging/consortia buying, strategic sourcing, supplier management, etc.) I noted in the area that continued savings based on negotiations are possible. For example, one consortia recently saved ~2% on bidding out office products spend across two of the largest providers for their members (OK, there's only one truly large provider, but you can guess who that is -- and yes, they played ball).

The key for success in this category is becoming a "good customer" to providers, which is more and more challenging given a typical 3% year-over-year decrease in spending for traditional office products categories (e.g., paper, toner, etc.) based on reduced office consumption and the move to digital presentation formats. For office products today, compliance continues to be as important as sourcing in driving implemented savings. In other words, unless you're monitoring vendor compliance at the SKU level, chances are they will find ways of taking back margin. Which after all, is precisely why so many indirect sourcing consultants and firms remain in business.

Stay tuned as we explore specific price trends and forecasts in the MRO area.

- Jason Busch

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