FAQs
How reliable are commercially available price guides?
Mike Buchanan, managing director of consultancy LPS, writes: In my opinion, too many purchasing staff use these guides as evidence that they are “buying well”. They have, arguably, a value in depicting historical price trends - and for this reason it is best to stick to one guide over a period of time.
But in my experience, the “lowest price” they quote is often higher than that paid by even medium-volume buyers. There are several possible explanations for this.
First, whether fairly or not, the guide writers are often regarded as being more responsive to producers’ views rather than buyers’ views. Hence they reflect the producer’s view on prices more closely.
Second, a high proportion of major polymer markets - more than 60 per cent in some cases - trade on the basis of these indices. For example, at a given company, prices for June will be based on the index price in May plus or minus £x/tonne. This raises the question of whether the index tracks the market or vice versa.
Lastly, the guides appear to feed off each other. They seem reluctant to step outside “the consensus”, in much the same way that some economic forecasters simply reflect the views of other forecasters.
Very small-volume buyers can often achieve the “lowest price” reported in the guides. Does this tally with your experience of how markets generally work? I hope not. My advice, therefore, would be to push for higher discounts from the reported lowest prices, while ensuring that continuity of supply is assured contractually.
Of course, price indices are useful when buying goods manufactured from polymers. The polymer cost element of such goods can move in line with the reported “lowest price”. So if the former is 10p, and the lowest reported price falls by 10 per cent, the delivered cost of the good should fall by 1p.