Once you have looked at the commodity markets to determine historical movement since you last sourced your category and the future outlook, the opportunity to drive your prices lower is also based on other factors such as the financial performance of the companies you may want to invite to participate including your incumbent supplier.
Using an example from EDAGR as we discussed yesterday for an unnamed supplier we have determined the following data. The unnamed supplier’s sales have risen consistently from 2010 through 2012. In particular, sales rose 19% from 2011 to 2012. Gross profit during the same period rose 44.8% and net income rose 90%. All of this is supported by an increase in unit sales of 26.6%. I know your next question, what does this mean?
1. We’ve learned that even in the face of a slightly rising market which also has lower futures that your potential supplier was able to produce enviable numbers. Their Sales and Margins are both up so they have increased sales and reduced the cost (net income is up) of sales at the same time. This is a key indicator.
2. As a result of the aforementioned numbers, it would indicate that they have room to move on price for selected customers if the new business is important to them or a net gain. Remember they still have to grow to please their shareholders. There is often margin set aside for winning new business and they are not the incumbent.
3. Finding suppliers with these metrics of which there were several also suggests that your incumbent supplier may have to discount to a certain extent in order to keep your business. As such, an award here may help to avoid switching costs and make a slightly higher bid a better total deal, so do the math.
If you’d like to learn more about SafeSourcing spend analysis process please contact a SafeSourcing customer services representative.
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