In the land of the blind, the person with 1 eye is king.
Would we not all love to know what our competitors are paying for a product. Or what is the minimum price of a product?
But unless we are a lifeblood customer to our suppliers, with the ability to tender large volumes and switch suppliers quickly, we are unlikely to find that sweet spot.
In most other cases, benchmarking prices can help in several ways. There are 3 ways to approach price benchmarking: Direct benchmarking, doing a cost-breakdown, and tracking relevant indexes.
In some cases, with a little market research, it is possible to find direct benchmark pricing. If you know where to look, you will be surprised what information you can find. Legally of course.
Very often it is possible to find or buy relevant direct benchmark pricing that will either give you an estimate of the gap between your pricing and best market pricing, or it will help you to identify new potential sources of supply.
Either way – you have taken a first step on a voyage of discovery
Cost breakdown benchmark
Benchmarking does not need to be direct comparable market price to be useful.
Based on a little research you can start to build a cost model of the raw materials which you purchase. To understand the gap between the cost-breakdown and the prices you are paying. It might take a couple of cycles, but soon you will start to identify where supplier margins may be excessive.
In these cases, you will need to target price decreases, usually through increased competition for your business.
Critical cost-driver index
Even if the information is not available to do a full costing, it is still possible to create a benchmark of the critical cost drivers and index that trend against the trend your own prices.
This is no direct benchmark, but it will help you as a trend analysis. If there is a strong correlation between your pricing and the prices of the critical cost drivers, you will have a useful analytical tool.
This method is sometimes used as an agreed formula-pricing or pricing-mechanism methodology but even if it is tracked unilaterally it can still be useful input into a negotiation.
4 significant benefits to doing an indirect cost benchmark:
- A price index of critical cost drivers is vital input into any regular negotiation
- As you will discover quickly, suppliers are quicker to raise prices than to decrease them. With an indirect cost-driver index, you will be able to recognise opportunities for price decreases more quickly
- Usually there is a time lag between an indirect cost-driver movement and the impact on your procurement prices, giving you a month or 2 to react to likely price increases. This allow you to stock up, or hold off on orders until you have price decreases agreed
- You will start to understand the behaviour and sources of critical feedstocks, helping you to better manage risk and supply disruption. In some case, it will help you find cost savings
ProcureAnalytiq was set up specifically to help manage this process in the simplest and quickest way. You set up the benchmarks once and we update the underlying price and FX data on a regular basis. That will automatically update your benchmarks
There is a standard database of chemicals and commodity pricing that we keep updated. We are available to source benchmark data for you on a “no cure-no pay” basis. And we are available to help you get the most out of the system.
Once the benchmarks are set up, you will get a regular email from us to update you on the results.
ProcureAnalytiq will give you an extra tool in the never-ending fight for lower prices.
If you are curious, get in touch with us to explore options for your business.
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BusinessAnalytiq is an online tool to track relevant market developments, key benchmarks & leading indicators for you.
BusinessAnalytiq means you will always have the best market awareness in the room, leading to better discussions, faster decisions, better negotiations, better raw material prices, better internal and external communication, and ultimately lower risk and higher profit.