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Strengthening Your Negotiating Position Using Price Indexes

Strengthening Your Negotiating Position Using Price Indexes. Introduction. What kind of indexes are useful in negotiations with suppliers?. Three examples of useful indexes. Six Things Indexes Can Do for You . 1. Evaluate the legitimacy of a price-increase request

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Strengthening Your Negotiating Position Using Price Indexes

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  1. Strengthening Your Negotiating Position Using Price Indexes

  2. Introduction What kind of indexes are useful in negotiations with suppliers?

  3. Three examples of useful indexes

  4. Six Things Indexes Can Do for You. 1. Evaluate the legitimacy of a price-increase request 2. Support a variety of pricing clauses, e.g. Price tied to an index Fixed price with annual re-determination Pre-qualified vendors who re-bid by project or year. 3. ‘Set Expectations’ in bid documents 4. Signal when the time is right to go after a price decrease 5. Help explain prices changes to End Users 6. Back up due diligence

  5. Lumber costs (two-year view)

  6. Two-year view

  7. Five-year view

  8. Transportation cost drivers (one-year view)

  9. Transportation cost drivers (two-year view)

  10. Six Things Indexes Can Do for You. 1. Evaluate the legitimacy of a price-increase request 2. Support a variety of pricing clauses, e.g. • Price tied to an index • Fixed price with annual re-determination • Pre-qualified vendors who re-bid by project or year. 3. ‘Set Expectations’ in bid documents 4. Signal when the time is right to go after a price decrease 5. Help explain prices changes to End Users 6. Back up due diligence

  11. Are Price Indexes Right for your Organization?Ask yourself three questions. • Are you under pressure to continually demonstrate how Purchasing contributes to the organization? • Are you being asked for process innovation ideas? • Are you being asked to run more like a business or private sector entity?

  12. Hints - If You Decide to Use Indexes 1 Figure out how to sell the concept (and cost) to management. 2 Don’t hesitate to contact index sources for more details. 3 Make things happen: research your top ten contracts and actively pursue deceases where warranted. 4 Try combining more than one index (modeling). 5 Expect (and prepare for) vendor ‘push-back’

  13. SummaryAdvantages of using indexes • Illuminate 'should-cost' trends • Support your negotiating position • Save research time • Get the end users on board • Evaluate legitimacy of suppliers' 'requests‘ for price increases. • Alert you to savings opportunities • Strengthen due diligence back-up

  14. Using indexes is a great way to: Teach vendors how to treat your entity

  15. War Stories Case studies • title paper, • fencing, • office paper, • truck and trailer & Audience participation

  16. Presenters’ Contact Information Rebecca Cook, Commodities division Director, DTMB – Procurement, State of Michigan, Phone: 517-373-8530 Cookr6@michigan.gov Rod Sherkin President, ProPurchaser.com Inc. Phone: 416-760-8386 Rod.Sherkin@propurchaser.com

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