Since the beginning of the industrial revolution, or so it seems, the supply professional has received the paradoxical mandate to reduce costs but maintain quality and improve delivery times. The traditional way to maximize supply performance, of course, is to negotiate with suppliers on price, quality and delivery. Tools a purchasing and supply manager can use in such negotiations include economic forecasts, statistical variation models and inventory capacity charts.
Supply chain efficiency continues to increase with the speed and accuracy of new Internet technologies. For example, B2B e-commerce communication linkage can be used by the supply chain manager to expedite supplier negotiations. Importantly, this channel can also enhance productivity and cut costs.
The Internet conveniently provides research and data collection used in negotiations with suppliers. Some of the tools a purchasing and supply manager can use in such negotiations include economic materials supply forecasts, statistical variation models, inventory capacity charts and productivity improvement software such as enterprise resource planning .
Check Those Figures
It's not surprising that the supply chain performance issue typically receiving the most attention is commodity, material and product pricing. This is because it's easily quantified and has a direct effect on the buyer and seller's bottom line. For the buyer, depending on the manufacturing industry, the conventional estimate is that material costs can consume 30 to 70 percent of total sales revenue. For the seller, material price is sales revenue. Thus, in order to protect the company's profit margin, a supply chain manager must thoroughly prepare to negotiate and understand pricing of raw materials, components and/or finished goods.
One fairly comprehensive source of pricing information is the National Association of Purchasing Management's (NAPM) semiannual report. The report is available at www.napm.org and is published in mid-May and mid-December. It contains data and predictions on a variety of items such as business revenues, material price changes, purchased inventory levels and purchased inventory-to-sales ratios.
NAPM also publishes a monthly online business report known as the NAPM Report On Business, which covers both the manufacturing and nonmanufacturing sectors. Well respected in the business community, Report On Business predicts such conditions as economic demand and raw material price inflation.
A supplier-requested price increase based on a change in raw material pricing can be substantiated online at www.purchasing.com under the heading Transaction Prices. To illustrate, suppose a supplier seeks to justify an 8 percent price increase on the basis of the cost of, say, methanol fuel. A skeptical buyer could readily access the latest transaction pricing at www.purchasing.com. He might see that methanol was being sold at $0.43/gallon last year compared to $0.45/gallon this year (only a 4.65 percent increase, well under the supplier's 8 percent increase). The buyer now has another quiver in his bow to shoot down a full 8 percent price increase based solely on higher raw material costs.
In addition, the supply manager can access specific industry pricing statistics at excite.com/business. This site also provides a review of the Bureau of Labor Statistics Producer Price Index. In fact, the Excite search engine is considered a solid provider of manufacturing industry statistics.
Another informative site with commodity pricing is www.cnnfn.com, which offers real-time pricing on commodity futures such as crude oil or base metals.