It’s not all about Price but it really makes a difference

In these days of outsourced non-core activities, very few businesses spend less than 60% of their Cost of Sales on Purchased Goods and Services. Assuming a business makes 10% profit then even a 1% change in Prices makes about 5% change in Profit. It is a key part of Supply Chain responsibility to look at what’s likely to happen to prices in the future, plan the best action which can be taken and make sure the targets are reflected sensibly in business plans. This is a great responsibility and its needs to be taken very seriously and undertaken professionally. The top few suppliers (20%?) will represent most of the purchase value. They will crudely split into the Leverage and Partner quadrants using the Kraljic 4-Box analysis. For all of those in the Leverage category, the market situation, cost drivers and individual supplier situations need to be examined carefully and negotiation strategies put in place. The Partner category suppliers need to be approached carefully. If possible, an approach which will enable joint working on developments to achieve the target supplies and prices needs to be started.