What should the purchaser do if the price of raw materials is increased?

Many purchasers go to the company every morning, turn on the computer, and receive emails, without exception, the price increase notification letter; even the circle of friends is full of various price increases, price adjustments, and various price increase funny jokes! But the boss doesn’t care about the supplier’s price increase, and only hopes that your purchasing cost will drop again and again.

troubled man

troubled man

What should the buyer do?

Must pay attention to the raw material market. First of all, you must understand the production raw materials of various materials and summarize their main upstream raw materials. The price quotation and trend of these raw materials, and market analysis will be your daily compulsory course. You have to understand the raw material market as clearly as the supplier.

Like suddenly you see:

The price of coking coal has risen by 200%,

The price of glass increased by 40%,

The price of plastic has risen by 30%,

The price of aluminum has risen by 30%,

The price of steel increased by 30%,

Stainless steel also exploded by 40%,

The freight price increased by 33.6%,

It seems that suddenly, the prices of production materials such as steel, pig iron, alumina, rubber, fuel oil, etc. have risen unanimously. In addition, due to the impact of road transportation restrictions, transportation prices may also increase. Due to the price increase of the above-mentioned products, it has driven the price increase of some related products and formed a chain reaction. In this case, many related companies, especially manufacturing and processing companies, have begun to complain because the rising raw material prices have increased their Cost burden. So how to deal with the price increase of raw materials? How to eliminate the cost-increasing factors caused by price increases? It has become a new topic and urgent matter for these companies.

The price of raw materials rises, what should our purchasers do?

First of all, we must define the cost-sharing problem of rising raw materials prices. Should it be borne by the supplier, the customer, or jointly? Personally think that it lies in the cooperative relationship between you and the supplier.

The structure is recognized by both parties (of course, the supplier still adds water to it), and will also serve as the basis for future price changes. In this way, the actual cost increase brought to the supplier by the increase in raw material prices should be borne by the customer, but at this time the purchase can discuss with the supplier: how to reasonably reduce his procurement cost? How to look for opportunities for reduction in other items of the cost structure? At this time, the cooperation of the supplier is required, and whether it cooperates depends on the strength of your company, or whether you have the conditions to kick people!

If there is no clear cost information, the purchaser can request it. Although the supplier is not happy or agrees, he also knows that the request is reasonable. If he disagrees, you should ask for it slowly, delay the implementation of the new price in the process of requesting, and do a good job of finding a new source.

It should be emphasized that unless your company is very powerful, you must have a suitable supplier reserve, and you must control the ownership of the special molds so as to facilitate the change of suppliers.

For example, GE, GE spent a lot of energy in finding suppliers, signed a lot of contracts, a lot of English, many companies are willing to blindly accept because of their reputation.

Therefore, there is only one supplier for each part of GE, which is convenient for him to manage. If the supplier does not cooperate, GE will take out a bunch of documents and talk to him. Everyone knows that GE is a big company and is a big business. Business losses will certainly not be small. Suppliers are afraid they cannot afford it, so even if they are unwilling to do it, they have to continue to do it. Of course, GE will be willing to let you withdraw because of your poor cooperation, but he has to take the initiative to kick you. However, more customers do not have such capabilities, so don’t refer to GE’s approach.

The above analysis is the supplier relationship of supporting products, and we will also contact the direct raw material supplier. Believe that no raw materials are monopolized by a company, so there is a difference between domestic and imported, brand and non-brand. At this time you have to look at the positioning of your company’s products.

If the company’s product quality and raw materials are close to brand worship, then you should not think about choosing domestic or non-branded things. At this time, if you are a multinational company, you can Sign group purchasing contracts with other brother companies with suppliers. If the number of joint purchases you are not interested in, or if your company’s brand or influence is not good in the industry, you can report truthfully like a manager. If the company is willing, it can consider domestic or non-branded company products under the condition of quality assurance.

But I have another piece of information to disclose. Some large multinational companies’ raw material suppliers often have many agents. This agent is sometimes useful. You may get a lower price from him. The reason is that as an agent, The manufacturer will give him a discount on the price, and the agent is willing to give you a lower price than the market price through running the volume. Also, a large company may not have much interest in small customers, so the quotation for small customers will be higher. In this way, small customers can be squeezed out, or transferred to agents to do it.

Regarding the agency of large companies’ products, there are actually ways to lower the purchase price. It is important to know that the prices of products in various places are often different, so purchases can be determined based on the comparison of the company’s purchase volume and transportation costs to determine whether it can be purchased from outside the country. Of course, some companies require agents from all over the country to sell in the region. If you believe that there will be a price difference, someone will take risks. Purchase can introduce new suppliers to transfer goods from other places. The foreign agent will not refuse, because he also wants to make money.

Companies adopt strategies to save procurement costs

Strategies to save procurement costs

As far as corporate procurement is concerned, there are many ways to save costs, which can be summarized as follows:

  1. Value analysis method and value engineering method, which are commonly referred to as VA and VE methods: applicable to new product workers: research on the functions of products or services, with the lowest life cycle cost, through elimination, simplification, change, substitution, etc. Method to achieve the purpose of reducing costs. Value engineering is a systematic study and analysis of the functions and costs of existing products. Now value analysis and value engineering have been regarded as the same concept.
  2. Negotiation: Negotiation is the process of agreement between buyers and sellers for their respective goals to reach mutual agreement. Negotiations are not limited to prices, but also apply to certain specific needs. Using the method of negotiation, it is usually expected that the purchase price will be reduced by about 3%-5%. If you want to achieve a greater reduction, you need to use price, cost analysis, value analysis and value engineering (VA, VE) and other methods.
  3. Early supplier participation in ESI: In the early stage of product design, suppliers who choose partnerships to participate in the new product development team. Through the early participation of the supplier, the new product development team can adjust the strategy very early according to the performance specification requirements of the supplier, and achieve the goal of reducing costs with the help of the supplier’s professional knowledge.
  4. Leveraged procurement: avoiding separate procurement, causing different units in the organization to purchase the same parts from the same supplier but at different prices, but they do not know each other, and the opportunity to save procurement costs is lost for no reason. Should focus on expanding the procurement volume, and increase the bargaining space.
  5. Joint procurement: procurement mainly occurs in non-profit businesses, such as hospitals, schools, etc., through statistics on the demand of different procurement organizations to obtain better discount prices. This is also used in general business activities, such as third-party procurement, specifically for those business units that have little demand.
  6. Designed to facilitate procurement, DFP-self-made and outsourcing strategy: In the product design stage, use the standards and technology of the co-organizer, and use industrial standard parts to facilitate the convenience of obtaining raw materials. This can greatly reduce the technical support required for self-manufacturing, and at the same time reduce production costs.
  7. Price and cost analysis: This is a basic tool for professional procurement. It is very important for purchasers to understand the basic elements of cost structure. If the purchaser does not understand the cost structure of the purchased items, it cannot be regarded as knowing whether the purchased items are at a fair and reasonable price, and at the same time they will lose many opportunities to reduce the purchase cost.
  8. Standardized procurement: implement standardization of specifications, use common designs and specifications for different product items or parts, or reduce the number of customized items, and achieve the goal of reducing manufacturing costs with economies of scale. But this is only one part of standardization, and the scope of standardization should be expanded to obtain greater benefits.
  9. Seek new supply channels. If the price of raw materials continues to increase and lasts for a long time, companies can consider seeking new supply channels, such as using bidding and procurement to find suppliers with lower material prices and suppliers who deal with overstocked products (similar materials) Qualified companies may also consider implementing international procurement when necessary.

There is also electronic procurement (reverse auctions), the use of new technologies, new materials, and new technological processes.

Factors that companies need to consider when choosing a procurement cost strategy

The above-mentioned several strategies for reducing procurement costs are only theoretical methods. In reality, when an enterprise formulates a procurement strategy, the following factors should be considered at the same time.

  1. The type of product or service purchased. The type of product or service purchased is a one-time purchase or a continuous purchase. This should be the most basic understanding of procurement. If the type of procurement changes, the strategy must be adjusted accordingly. Continuous procurement requires much higher cost analysis than one-time purchases, but if the amount of one-time purchases is quite large , Can not ignore its cost-saving effectiveness.
  2. Annual demand and total annual purchases. What is the annual demand and annual purchase amount, which is related to whether you can get a better bargaining advantage when negotiating with suppliers.
  3. Relationship with suppliers. Sellers, traditional suppliers, and approved suppliers maintain partnerships with suppliers, and then form strategic alliances, and share costs in different ways. If the relationship with the supplier is average, it is certainly not easy to get detailed cost organization information. Only when you maintain a close relationship with the supplier and cooperate with each other can you do it.
  4. The life cycle stage of the product. The purchase amount is directly related to the stage of the product’s life cycle. The purchase amount of the product will gradually increase from the introduction period, the growth period to the mature period, and the purchase amount will gradually shrink until the recession period occurs.

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