70% of new supplier agreements contain inflation driven economic adjustment clauses with the use of indices being the most common. It might be time for price risk sharing in buyer-supplier relationships. https://lnkd.in/g_ByzrNU.
Notice: “Cost recovery mechanisms should not be judged in isolation. Inflation-driven cost increases & adjustments need to be addressed in a timely manner that is consistent, tested, & institutionalized & supported by OEM & supplier cost reduction efforts.” See:
Has Strategic Cost Mgmt (i.e., Price Analysis) become a lost art? Tools we use to teach this: https://lnkd.in/gNrUtNU5.
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 negotiation.
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).
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 mgmt 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.
I would like to thank the Grand Rapids Chapter of ASCM for allowing me to speak at their April 26th PDM! For others that would like to participate in our research, please see below for a description:
Ongoing Study by WMU’s SCM Program
· Studying how orgs in different industries administer indexing & economic adjustments, their challenges, & 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 & manual effort
o Limited collaboration & visibility
o Scalability issues
o Data security & 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.
Challenges Facing Global Automotive Supply Chains:
Inflation. Suppliers identify material price increases and labor costs as their top concerns and primary drivers for reduced earnings.
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:
Please reach out to learn more about how automation of manual processes simplifies the calculation/re-pricing of current purchases and the forecasting of economic impact of future purchases.
A recent study by World Commerce and Contracting (based on July 2022 data surveying 400+ companies from 23 industries) reveals that 70% of new contracts contain economic adjustment clauses. Most companies currently manage massive spreadsheets to implement such price adjustments.
We will present initial findings from cutting edge research that is currently taking place by Western Michigan University’s Supply Chain Management program. This program studies how organizations currently manage price indexed/economically adjusted business and what challenges they face when doing so.
In addition, we will demonstration software/technology that is being utilized by companies to automate their business processes related to price indexing and economic adjustments. The software that will be shown was developed by N-Alpha, a Birmingham, Michigan company, that has been collaborating with WMU’s SCM program and providing access to its software for teaching and research purposes.
A quick video about price indexing solutions for procurement, finance, and sales organizations. Price indexing in supplier agreements to deal with inflation is becoming common. We hear questions like “So we’re indexing now, how do we manage this?”. Our business process automation solutions save valuable time and effort and allow on-demand analysis with clarity that no spreadsheet can provide.