Purchasing Training – Are You Tracking Market Prices for What You Purchase?

by Omid Ghamami

Purchasing Training – Are You Tracking Market Prices for What You Purchase?

One of my best clients has spent an entire career in sales.  A very successful one, and now he owns his own company.

In one of our recent conversations, he told me something that I’ll never forget:

“Whenever market rates go up on something I was selling, I would be on the phone the same day with purchasing, negotiating an increase.  However, whenever market rates would go down, nobody would call me, and I’d make a killing.  I don’t know why they would never call me.  I think they’re just not paying attention.”

Purchasing is already up to their ears in work.  It is my solid estimation, based on 20 years of working with companies in 17 different countries, that purchasing professionals spend 80% of their day in unplanned activities – none of which show up in status reports or performance reviews.

So given the above, is it a coincidence that purchasing professionals can’t find the time to check market rates on what they are buying?

And guess who is fully aware of the drop in market rates and is laughing all the way to the bank?  That’s right, your suppliers.    Remember, it’s not their fault, and they’re not being evil or underhanded.  It’s their job.  Their job is to maximize corporate profits, and you’re helping them do that when you don’t pay attention.

So what can you do?  Well, there are a few things you should be doing.   I’ll list them out:

  • Figure out cost drivers for what you are buying. For instance, if you are in the construction business, you should not be benchmarking construction building rates.  You should be benchmarking the cost of concrete, steel, lumber, and construction labor instead.

 

  • Figure out which trade journals or websites or online purchasing discussion groups can be resources of information for market pricing for what you are buying, and research information on costs, cost drivers, and market prices. Do this a MINIMUM of once a month, just put it on your calendar and do it (note: some price volatile commodities require that this done be weekly or more!).

 

  • Consider pursuing a Most Favored Customer clause in your contract that requires that you are getting the lowest price from your suppliers, either independent of volume purchased, or for like volumes. This means the supplier is contractually obligated to lower your pricing when their rates go down.

 

  • When you see a shift in market prices to your benefit, negotiate with the supplier. This is your right! You don’t need an excuse or a special contract clause, and you don’t need to offer an apology.  You don’t need to make sure the supplier is OK with it.  IT’S YOUR MONEY.  This is your right.  Tell the supplier what your research shows and set up a meeting to negotiate.

 

  • Watch Contract Price Variance (CPV). I once calculated for a Fortune 50 firm that the time lag between when they negotiated and agreed to new prices and when the prices actually took effect in the system with supplier payments resulted in $19 million of money left on the table annually.  Set an effective date and hold the supplier accountable to ensure that all discounts are retroactive to that date.

 

There you go.  It’s not that hard and you can do it.  More than that, it’s your job.  Being a world class purchasing professional doesn’t happen by accident. It takes a lot of hard work, but doing these kinds of things will set you apart from your peers, I promise.

And when you set yourself apart from your peers, you will never have to look for a job again.  Jobs look for you.   And then you can really negotiate.

We are in the best profession in the world.

Be your best!

Omid G

P.S.  I have created the BEST training product I’ve ever put together.  It is a game changer that will catapult your results, your income, and your career trajectory, I guarantee it.  Don’t wait for someone else to crown you, learn powerful strategies so you can crown yourself!  Check it out:

http://www.purchasingadvantage.com/purchasing-negotiation-strategies-for-breakthrough-tco

Negotiation Strategies for Breakthrough TCO

Negotiation Strategies for Breakthrough TCO

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