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Benchmarking your Suppliers’ Prices: How do you negotiate the best price?

Posted by minteclimited on Jul 22, 2020 4:04:46 PM

Businesses frequently rely on their suppliers for information on product prices. So it’s hardly surprising that it’s difficult to compare the performance of their buying strategy to that of their competitors. As a result, many procurement leaders believe they are getting the best prices from their current suppliers.

Being able to track what you are paying, for all product ingredients, and compare this to current market prices is essential to ensure you remain competitive. But it’s often difficult to gauge the real cost of raw materials. This is why the ability for procurement to carry out price benchmarking using independent market prices that reflect current costs is an essential element of any cost analysis process.

The process of building price benchmarking dashboards requires the actual prices paid to suppliers for products and raw materials to be compared to those paid to other suppliers. Making these like-for-like comparisons enables buyers and analysts to make more informed, data-driven purchasing decisions.

Understanding how your suppliers’ prices compare to those of other suppliers and the current market prices acts as a proxy for understanding your competitors’ costs - helping businesses to develop strategies to remain competitive.

This process can be time-consuming for procurement teams and requires access to current data from a range of sources that is timely and accurate. The ability to access data varies, along with the quality, accuracy and overall ease of use. The DIY approach to acquiring and processing data for analysis can be a significant time investment for procurement teams often resulting in a reluctance to undertake the analysis. Some of the issues encountered, to name but a few, include:

  • Difficulty contacting different suppliers and other sources for data to support price comparisons
  • Organising and pre-processing data into a consistent format ready for benchmarking
  • Assessing the accuracy, reliability and overall quality of the data
  • Obtaining necessary permissions or licences to obtain, store and use any data acquired

Notwithstanding the missed opportunity cost using valuable analyst resources to undertake data collection and processing. With limited resources and an increasing remit, it’s easy to understand why many companies choose to focus on core business activity and outsource labour-intensive tasks.

A common factor of successful companies is their focus on controlling costs, driving efficiencies and mitigating any competitive risk. One way to achieving all three is price benchmarking, whereby procurement teams can avoid inadvertently paying too much for any product, while efficiently managing resources and helping to identify any emerging comparative threats from lower-cost suppliers

For those in the food and beverage sector understating how the cost of ingredients contribute to the overall product, costs are essential. Often small and seemingly insignificant ingredients can play a critical role in driving up product costs. Removing or substituting alternative ingredients with a lower cost can make all the difference to the bottom line while having no discernible impact on product quality.

For those producing meat-based products, it can often be the overlooked items such as seasonings and coating that can slip under the radar when analysing costs. At the same time, those in the volume food-service sector can make a significant saving by assessing portion size or eliminating unnecessary garnishes and condiments.

One way of assessing and controlling these factors is through a spend analysis platform which provides access to a combination of tools and data that supports supplier price benchmarking for comparing actual supplier prices to current market prices. Also, the ability to build individual product cost models using integrated tools enables the overall product cost to be calculated and tracked against these current market prices.     

Mintec Analytics is one such platform that brings together both analytical tools and comprehensive price data from over 14,000 different commodities and food ingredients. This consolidated approach to spend analysis ensures that procurement teams can benchmark their suppliers to ensure that their buyers can negotiate the best price possible.

Topics: Food Ingredients, procurement, supply chain

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