The Top Import Partner of Every U.S. State: https://lnkd.in/eKT767J9. Check out Michigan…Top import customer: Mexico, 44% of total state imports?! $70B. You would think Michigan borders Mexico. American automotive OEMs and suppliers? In one of my supply chain classes, we discussed economic price adjustments and indexing, and a student asked how tariffs could be captured in a similar way. This led to a conversation about how the strategies outlined in our research on price indexing and inflation protection can also help companies navigate the “potential” return of Trump-era tariffs. For a copy, see: https://lnkd.in/e7nX7C3J. With new tariffs—such as 25% on steel and aluminum imports—businesses will obviously face rising costs for critical materials, impacting procurement contracts and overall supply chain expenses.
To mitigate these risks, companies can integrate solutions into their supplier agreements, even allowing for real-time adjustments based on tariff fluctuations. By tying contract pricing to recognized indices, such as commodity exchange data and/or Bureau of Labor Statistics figures (i.e., PPI for relevant metal categories such as aluminum and steel), organizations can create structured, transparent mechanisms for cost-sharing. For instance, a contract could specify that if tariffs increase beyond a certain threshold, the price adjusts based on a predefined formula, ensuring that both buyers and suppliers share the financial impact rather than one party shouldering the full burden.
Further, “automating” these adjustments eliminates the need for giant color coded spreadsheets. It allows businesses to remain agile in a shifting trade environment, protecting profitability while maintaining strong supplier relationships (rather than straining them, right?). Just as price indexing has proven effective in managing inflationary pressures, it can serve as a crucial tool for responding to tariff-induced cost volatility, ensuring fair, data-driven pricing adjustments, and in real-time (ideally).
Implementing such solutions can address many of the issues seen in today’s SCM organizations that manage price indexing in their supplier agreements (over 70% of new contracts based on a recent study…
https://lnkd.in/g_ByzrNU.)
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).
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 (so that we can teach it). https://lnkd.in/gNrUtNU5
The WMU Supply Chain Program has been talking to many of our alumni and doing research in the field of commodity pricing and how such pricing is used in internal business processes. Here are some findings: Working with commodity pricing data doesn’t have to be a drag.
See the below presentation with some recommendations and insights for professionals in the space.
For a copy of our initial results on…Managing inflationary price risks in supplier-buyer contracts through indexing: Operational challenges and solutions –
https://lnkd.in/eUfxt_P9
I look forward to any other suggestions and comments.
Join the WMU Supply Chain Program to gain the edge in your SCM career.
Managing inflationary price risks in supplier-buyer contracts through indexing: Operational challenges and solutions…Work smart and be effective. How? To work smartly and effectively, leverage technology to streamline business processes and automate repetitive tasks.
https://lnkd.in/eigvjJnr
Use cloud-based tools for storage, collaboration, and processing, which offer seamless integration and remote access, maintaining productivity from any location. Begin by identifying key indices and data points for your price indexing contract, then set up automated tools to manage this process. AI language models can also automate the reading of proprietary data. Various tools can automate data collection, perform calculations based on schedules, add time stamps, and share results with stakeholders. These tools often include data visualization, simplifying complex data into actionable insights. By adopting such automation strategies, you enhance efficiency and can focus on strategic tasks. For example, the N-Alpha’s MaterialX platform used in WMU’s Supply Chain Management program connects to multiple data sources and automates formula calculations and updates, eliminating the need for spreadsheets to calculate the “quarterly price per part.”
https://lnkd.in/eigvjJnr
https://www.simecurkovic.com/wp-content/uploads/2024/05/1WithSCMRCoverCurkovicPriceRIskSCMR2024a.pdf