January 2011 | Lindsay Clark
Purchasers should not let escalating global
prices distract them from the search for value for money.
According to procurement consultancy ADR International too much focus on
price can blind buyers to the need for further negotiation with vendors.
Bill Michels, CEO of ADR North America, said in a briefing: “Most suppliers
will have survived the recession by cutting their overhead and profit margins
razor-thin. New orders have the potential to be very profitable, based on the
“On the other hand, insisting on price
reductions when margins are already thin can push a good supplier out of
business – or to a rival customer.”
In the last month, figures
from the Office for National Statistics
and the Markit/CIPS Purchasing Manager’s
showed rapidly increased prices of commodities due to growing demand and
interruptions in supply caused by bad weather. Meanwhile, the Confederation of
British Industry in the UK has foundevidence that manufacturers are now passing on prices rises to their customers.
Paper is one of the commodities to see high
price increases over the last year. ADR sourcing consultant Tera McKeen said
procurement professionals could help deal with the challenge of growing paper
prices by challenging suppliers.
is essential for the paper buyer to gain an insight into the best possible way
to target areas of cost reduction by understanding how various cost components
contribute to the supplier’s price,” she said.
“If you are not already
operating in an open book environment where you know what proportion of the
supplier’s costs raw materials, production, energy, transport, profit margins
and so on represent, a cost breakdown will give you a clearer understanding.
“This will help you focus
on the supplier’s motivation: to what extent are their increased costs
justified? Don’t be afraid to challenge the price increases,” McKeen