Supply Excellence
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…and More Bad News from the Fed…

May 11th, 2006 · by Tim Minahan · 1 Comment · sourcing, supply management

Higher commodity prices are fueling fears that the Federal Reserve will continue to raise rates at its June meeting and beyond in an effort to put a lid on inflationary pressures.

Earlier this week the Fed raised a key interest rate for the 16th straight increase. This time the Fed raised its short-term rate another quarter-point to 5% and hinted that it may need to keep raising rates.

Upshot: Expect supply prices to continue to climb for the remainder of the year. And, while I’d like to tell you that price increases can be completely eliminated through strategic sourcing, the reality is that such practices will help you secure true market pricing.

Hence, if you are targeting a supply market where prices are creeping up, be prepared to reset expectations both with supply management team members and other internal stakeholders. Tell them to expect price increases, but reassure them that your strategic sourcing methods will keep such increases to a minimum.

“As sourcing managers, we need to set expectations appropriately at the ouset [of the sourcing project] or you won’t be able to maintain the process integrity and support required for success,” said Rajat Mitra, the head of e-sourcing at Compass, the world’s largest food services company.

With food prices wavering based on everything from demand to weather, Compass faces pricing volatility often. Rajat and his team constantly benchmark market pricing and dynamics and use this to set realistic expectations for sourcing and auction goals.

“We recently did an auction on tuna and achieved a savings of 6% when the market went up 10%,” said Rajat. ”While no one likes a price increase, it helps to prepare [stakeholders] for what to expect from each sourcing event.”

 

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1 response so far ↓

  • 1 Supply Excellence » Do Price Increases Portend the End of the World As We Know It? // Aug 1, 2006 at 2:51 pm

    [...] (Re)set expectations: Use pricing benchmarks to set realistic expectations for sourcing and auction goals. When benchmarks portend a price increase, Compass resets expectations, using e-sourcing to negotiate below-market increases. Says one Compass sourcing executive: “While no one likes a price increase, it helps to prepare [stakeholders] for what to expect from each sourcing event.” [...]

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