In the last 7 months the S&P GSCI nearly completed a return trip & only ended up rising 8.7% in 2022 overall. A July 2022 study from World Commerce & Contracting found that 70% of new supplier agreements contain inflation driven economic adjustment/indexing clauses. 70% of contracts have price INCREASE provisions. It’s a new world in SCM. https://lnkd.in/g_ByzrNU
Supply chains top CFO business risk concerns: “#1 – raw material costs” https://lnkd.in/gK2nRVUs It seems like Strategic Cost Mgmt (i.e., Price Analysis) has become a lost art. Pre-covid: According to a Deloitte 2019 Global Survey of over 1,200 execs directly involved in cost mgmt, cost reduction remained an essential business practice all around the world, with the vast majority of surveyed companies (71%) planning to cut costs over the next 24 months (2020-22). How did that go? https://lnkd.in/guZexE_s
I have asked a lot of SCM managers how they “prepare” to negotiate price increase requests from their suppliers. In particular, I was curious about how and where they get their data from (i.e., CME, COMEX, etc.). Many said their suppliers provide that information. I am not convinced that using data from your suppliers is a form of “Preparation” for the negotiation process.
What are buyers to do? Procurement orgs need processes & “tools” to mitigate & negotiate on these requests in a strategic, data-driven manner (& we/I need to do a better job of teaching it).
This month, we will also be looking at raw material market data from multiple sources, we will visualize & analyze historical pricing scenarios, & do some simulating on planned purchases & what-if scenarios against forward price curves. It beats updating color coded excel spreadsheets. https://lnkd.in/gMuhMNf6
See #2 at:
Key upcoming theme: Raw materials. Several CEOs (3%) talked about copper (+30% compared w/ Q2/2022), & 2% talked about lithium (+13%). These two raw materials are part of a long list of other raw materials, such as lumber, nickel, & cobalt, all of which experienced increased price volatility in the past 3 years.
Great post & read. Our SCM program is fortunate to be working w/ industry partners such as N-Alpha.
Stay tuned for some white papers from the WMU SCM program based on price analysis & strategic cost management research… Some of our alumni are already testing and / or implementing automated business processes based on such tools, serving as the basis for addressing price indexing implementations (formulas, economic adjustments, etc.) by champions in a few larger orgs, and we’re following these implementations from an academic perspective.
Great read & spot on – Rising Interest Rates: Maybe It’s Time to Bring Back the Forgotten Art of Price Analysis | Robert Handfield Ph.D. https://lnkd.in/gTjJfyaQ