Trust Your Suppliers, Not Their Data
Depending on a supplier to provide customers with unbiased information is like asking the proverbial fox to guard the henhouse.
Procurement professionals need to trust their suppliers’ products, delivery, quality and service. If they can’t trust them, they probably shouldn’t be doing business with them.
At the same time, trust does not mean unquestioned acceptance – especially when it comes to the data suppliers provide when they are trying to justify a price increase. Everyone is in business to make all the money they can. If a supplier has to choose between his bottom line and someone else’s, he will pick his. And he should – it is his job to do so!
Depending on a supplier to provide customers with unbiased information is like asking the proverbial fox to guard the henhouse. This is when procurement steps into the critical role of information validator. The company relies upon procurement to determine whether the supplier’s cost assertions are true.
ProPurchaser recently asked procurement professionals, “Where do you go for information to validate price increases when suppliers point to higher input costs?”
Surprisingly, 30% of them told us that they go to the very same suppliers that asked for the increase. When asked why, they said it was because they didn’t know where else to find information they could trust.
Good news: finding outside sources of cost information has never been easier. A wealth of data about raw materials, labor and energy abounds on the internet, and many services are either free or priced such that they pay for themselves very quickly.
Having independent information sources is important for two reasons:
First, they allow procurement to gauge the reasonableness of a supplier’s request. For example, it is not uncommon for sources of steel cost information to disagree on price movement on any given month: one might say up, while the other says down. Clearly, suppliers are going to quote the “up” figure.
Secondly, outside sources will also alert procurement when suppliers’ costs go down (and therefore their selling prices should be lower)- something they are not likely to discover if they depend solely on suppliers for information.
Call to Action:
If you’re interested in judging for yourself if cost transparency really works, join thousands of other procurement professionals and take out a free trial to ProPurchaser (no credit card required).