Smart-Purchasing.com: Best Practices: Checklist

Best Practices: Contracting
Review Supply Markets

Traditional	Best Practice
Limited market research available and accessible. Buyer missing incremental rate reduction opportunities. Difficulty arguing against supplier price escalation. Done deal is a done deal.	Formalized quarterly review of all product areas using ICE Alert Top 50 Negotiating Opportunities report. Target selected suppliers for rate reductions. -- ICE Alert is a list of markets in which buyers can “develop strong cost-based arguments for reducing prices without a high risk of damaging supplier profitability”.

Rationale
Empowers buyer to negotiate from a fact base: Use to call for price reductions Use to argue against price increases.
Details
EXAMPLE: “4th quarter 1998, SIC 2999, Other Petroleum and Coal Products: Over the last 24 months, estimates show per unit manufacturing costs have fallen 15.9% while producers have increased average product prices by 1.3%. ICE modeling shows typical establishment spending of $49.65 on direct manufacturing costs per $100 of product sold, $13.50 below average spending for the last five years. In order to bring current spending back in line with its five year average, ICE Model calculations show that producers would have to reduce prices 21.4% (20.4% with overhead included). Available for 318 industries.

Best Practice | Case Study | Commentary