strengthening your negotiating position using price indexes
DESCRIPTION
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 - PowerPoint PPT PresentationTRANSCRIPT
nigp.org
Strengthening Your Negotiating Position Using Price Indexes
| nigp.org2
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
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
7
Two-year view
8
Five-year view
9
10
Transportation cost drivers (one-year view)
11
Transportation cost drivers (two-year view)
12
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
| nigp.org13
Are Price Indexes Right for your Organization?Ask yourself three questions.
1. Are you under pressure to continually demonstrate how Purchasing contributes to the organization?
2. Are you being asked for process innovation ideas?
3. Are you being asked to run more like a business or private sector entity?
| nigp.org
Hints - If You Decide to Use Indexes1 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’
| nigp.org15
SummaryAdvantages of using indexes
1. Illuminate 'should-cost' trends2. Support your negotiating position3. Save research time4. Get the end users on board 5. Evaluate legitimacy of suppliers' 'requests‘ for price
increases.6. Alert you to savings opportunities7. Strengthen due diligence back-up
16
Using indexes is a great way to:
Teach vendors how to treat your entity
| nigp.org17
War Stories
Case studies • title paper, • fencing, • office paper, • truck and trailer
& Audience participation
18
19
20
21
22
| nigp.org23
Presenters’ Contact Information
Rebecca Cook, Commodities division Director,DTMB – Procurement, State of Michigan,Phone: [email protected]
Rod SherkinPresident, ProPurchaser.com Inc.Phone: [email protected]