Managing Price Indexing & Economic Adjustments During Inflationary Times? “A commodity supercycle occurs when prices of commodities rise above their long-term averages for long periods of time, even decades.” Decades? Note, the push towards green energy & infrastructure investments, could lead to this “sustained” period of increased demand for commodities (think copper, nickel, lithium, etc.). Either way, it might be time for price risk sharing in buyer-supplier relationships.
Has Strategic Cost Mgmt (i.e., Price Analysis) become a lost art? Price analysis is a subject that is often overlooked in supply chain education. 70% of new supplier agreements contain inflation driven economic adjustment clauses with the use of indices being the most common. https://lnkd.in/g_ByzrNU. Will you be ready when your supplier asks for a price increase (or the other way)? Tools we use to teach this: https://lnkd.in/gNrUtNU5.
How to Negotiate with Powerful Suppliers. From the Harvard Business Review: https://lnkd.in/gfFjxRMB.
More material on how to respond to supplier price increases:
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 organizations need processes and “tools” to mitigate and negotiate on these requests in a strategic, data-driven manner (and we/I need to do a better job of teaching it).
In our SCM program, we are 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. Stay tuned for our case study report 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, & we’re following these implementations from an academic perspective. It beats updating color coded excel spreadsheets. https://lnkd.in/ghjfe3gh
Automated economic adjustments: https://lnkd.in/gNrUtNU5.
Great read- Rising Interest Rates: Maybe It’s Time to Bring Back the Forgotten Art of Price Analysis. https://lnkd.in/gTjJfyaQ
“Managing Price Indexing & Economic Adjustments During Inflationary Times”. I would like to thank the Grand Rapids Chapter of ASCM for allowing me to speak at their April 26th PDM! For those that requested to participate in our research, please see below for my contact information & a description of our study (others are also welcome to join):
Ongoing Study by Western Michigan University’s SCM Program
· Studying how companies in different industries administer indexing and economic adjustments, their challenges, and how such processes may be improved
· Initial findings:
o Organizational ownership of process is not well defined
o Human error, lack of audit trail
o Lack of automation, requiring sufficient time and manual effort
o Limited collaboration and visibility
o Scalability issues
o Data security and access control
o Limited integration
· You are invited to join our study
· Software tools will be provided to evaluate how companies may implement business process automation.
Dr. Sime (Sheema) Curkovic, Ph.D.,
Professor, Operations/Supply Chain
Western Michigan University, Haworth College of Business
Kalamazoo, MI 49008-5429 | E-mail: firstname.lastname@example.org
Thank you again GR ASCM!
#inflation, #procurement, #rawmaterials, #supplychain, #scm, #indexing