Does your Procurement team really understand why your prices are going up? Or not going down in a significant way?
Todays post is by Ron Southard, CEO at SafeSourcing Inc.
Here’s the diatribe to tell you why they don’t.
Example: Your finance department in reviewing current costs looks at your waste management costs and discovers that they have gone up significantly over the last two years. They call your Category Manager (if you have one) in order to ask why? The answer they get back is that in discussions with your current vendor, their costs have gone up significantly. Your finance department representative asks for examples. The answer he/she gets, is as follows, “I don’t know, but I’ll reach out and ask”.
Alternative Example: Your finance department in reviewing current costs looks at your waste management costs and discovers that they have gone up significantly over the past two years. They call your Sourcing provider SafeSourcing Inc. (if they are) in order to ask why? The answer they get back is that in discussions with your current vendor, their costs have gone up significantly. Your finance department representative asks SafeSourcing for examples. The answer he/she receives is as follows.
There are several reasons. The first is that 2 years ago the Chinese were the largest importers of recycled materials, specifically plastics and papers. At the time they were importing approximately 15M metric tons. Today they are importing approximately 7M metric tons. This has gone from a revenue producing opportunity for suppliers to a cost. Additionally, there is a shortfall of drivers in the US that has caused demand for their skills to increase accordingly. As a result, all freight hauling focused companies have experienced a shortfall of drivers and an increase in costs for the drivers that they do hire.
Additionally, diesel prices in 2017 were lower than they are today. While these prices have eroded somewhat (about 6%) between 2018 to 2019, they are still not at the low levels they were in 2017. There are additional areas to also consider like new equipment that are also higher based on demand. Now can I provide you with a strategy as to how we (SafeSourcing) can mitigate these costs going forward and maybe even rain them in some?
I know all executives have had these types of frustrating conversations internally as well as with your suppliers. I also know that SafeSourcing regularly provides these types of answers and reviews across hundreds of categories for our customers. It is the precise reason that our average savings across all categories during the last 2 years is greater than 24%.
While the above is a specific example, what can you tell me about your freight costs, supplies costs, commodity costs, construction costs, equipment costs, items for resale costs etc. Probably not as much as SafeSourcing can tell you. Give us a call and find out.
For more information regarding SafeSourcing and how we can help you with your sourcing, or regarding our Risk Free Trial Program, please contact a SafeSourcing Customer Service representative, you’ll be glad you did! We have an entire team ready to assist you today.
We look forward to and appreciate your comments.