Each and every procurement department will at some time face a scenario where suppliers state they are forced to increase their prices for their goods and/or services.
On the other hand procurement departments see prices tumbling down for a certain commodity that their supplier is using, but see no downward movement in supplier prices.
Are procurement departments capable of assessing the true nature of the changes in costs, since pricing is nothing but a sales policy?
As part of the integrated spend management framework, Finance and Procurement Professionals from Capgemini Consulting have developed a new offering to give a procurement department the right tools and insight to at least level the balance of power within a supplier relationship.
The methodology covers looking at the cost and value drivers that, combined, make the procurement costs on any product or service.
Having applied the methodology clients will gain considerable insight into what drives the cost of the commodity, category, product or service that is procured and what the impact on cost price might be.
Secondly the methodology will assess if the services, quality standards and brand that a supplier is delivering, are still in sync with your requirements and if the supplier is delivering the value that is promised.
The cost driver element in the offering is referred to as Market Price Indexing.
By collaboratively breaking down as many the cost elements of which the procured item is made as possible, and looking at economical, technological and other external market developments, an assessment can be made about whether suppliers have followed the “market price”.
Optionally Capgemini can offer to update the data on a regular basis so the procurement department will have an index figure that shows the trend on the market, resulting in fact based discussions with the supplier.
The value driver element in the offering looks at value from different perspectives: both from the buying organization and the supplier’s point of view.
Is there a fit between value needed and value delivered?
Is the perception by your supplier of his value delivery matching your perception of his delivery?
These questions will be answered by completing a questionnaire by the buying organisation and the supplier in scope.
This will give a graphical overview on how well expectations and promises from both sides are met.
For more information on this area of Procurement Intelligence, please contact Colin.Hartog@capgemini.com.