Tips on how to handle price escalations from suppliers in the New Year
Welcome to the close of 2011 and the commencement of 2012. More important, welcome to the season of price escalations. The first quarter of each year is historically the advent of upward pricing pressure by suppliers as a result of the desire to boost profits and increase earnings.
Despite the reasoning, now is a great time to turn the tables and set the stage for suppliers in the coming year. Armed with the knowledge that price escalations are on the horizon, try initiating the following three steps to reduce the financial impact and set new expectations for the coming year.
First quarter forum: If you are trying to get a jump on innovative solutions to reduce total cost in the coming year, plan to hold a supplier forum. The event should be planned around the desire to identify innovative solutions and to build stronger relations. Suppliers frequently invite their customers to attend events throughout the year to demonstrate new capabilities and services; take a page from this marketing venture and invite suppliers to contribute solutions that directly influence your areas of greatest concern.
Forecast the future: Historical data has value. But if we only look behind us we loose sight of any future potential. To determine pricing trends for the new year, apply a combination of your judgment and supplier feedback. The paper and plastics industries are famous for generating buzz in advance of potential increases, often predicting the quarter in which such increases may be introduced. Capture this information to plan your buying strategy and minimize the impact of potential increases.
Develop a supply strategy: Despite best intentions, we are often caught on the receiving end of pricing volatility and poor service. Identifying and building relationships strategically with new suppliers provides not only an alternate supply source, but also a source of referrals for potential new partners. Referrals present qualified and proven leads for sales professionals, why not apply the same approach in your sourcing efforts? Efforts are minimized with proven results.
In the coming year, resolve to invest less time on individual supply challenges and place a broad perspective on how to mitigate the impact of rising costs. Applying the three steps above is the first step in managing cost across the supply chain and reducing the total cost of ownership.