Supply Excellence — Dynamic Pricing: Even parking meters are unpredictable

Dynamic Pricing: Even parking meters are unpredictable

June 24th, 2008 · by Ken Miklos · No Comments · best practices, contract management, sourcing, supply management, supply risk

Are we heading towards a future where dynamic pricing is the model for everything? Technology, particularly the internet, has changed researching, sourcing and buying products into a real-time event, even when it crosses borders and oceans around the world. How far have we already slid down this slippery slope?

The city of San Francisco is testing the use of dynamic pricing in their parking meters.

That is a sure sign that nothing - not even the amount of time 25¢ will buy you - is sacred when it comes to pricing in the modern world. And while economists may applaud dynamic pricing as a perfectly rational supply and demand pricing model, we all know that the business world strives to accurately forecast costs is essential.

So, it’s likely that the rise in dynamic pricing will be met by companies increasing their efforts to lock in prices with their suppliers. Contracts with pricing tied closely to indices (currency, commodity price or other) will help reduce the risk of wildly fluctuating costs for direct and indirect goods. In a recent piece for IACCM, my colleague Brian Frank stated that “an increasing number of companies are hedging long-term fixed price agreements” and they’re making their hedging decisions “based on the ‘risk profile’ of the particular market or trading relationship.”

Honestly, how could many companies afford not to? With the combination of increasingly interconnected commodity markets AND the technology to take dynamic pricing to a global scale in real time, price volatility is a fact of life. So although it’s unlikely the SF Parking cops will enter into a contract with you to lock down your meter prices, you might have better luck with your company’s bigger ticket items.

Ken Miklos is a Senior Product Marketing Manager for Ariba’s Visibility and Contracts solutions.

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