Strengthening Your Negotiating Position Using Price Indexes

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: 517-373-8530Cookr6@michigan.gov

Rod SherkinPresident, ProPurchaser.com Inc.Phone: 416-760-8386Rod.Sherkin@propurchaser.com