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Taming the tiger
Propurchaser helps manage commodities volatility
Few supply chain professionals in Canada have tamed the commodities tiger. Volatility remains the order of the day in the commodities market and it’s here to stay, driven by factors ranging from global limitations in supply and processing for industrial minerals and metals, to China’s seemingly endless appetite for energy and raw materials.
No single organization—regardless of size or supply chain reach and power—can exert much influence, singly, on the world commodities market. Despite that reality, supply chain professionals in sectors dependant on raw materials or energy find themselves expected to ride the tiger, or at least keep it out of the back yard.
Market insight is the best lever a supply chain professional can bring to strategic commodities purchasing decisions. When the questions arise: “Are we paying too much?” or “Why are we over budget?” knowledge is key.
But tracking commodities has its challenges for even the largest organizations. For mid-size or smaller organizations, the job is mostly not do-able on a consistent basis.
For those organizations without the resources to stay in constant touch with the commodities market, one of PMAC’s business partners, Propurchaser, might be the solution. Propurchaser is a commodities information service that allows supply chain practitioners to choose a personal basket of commodity cost drivers. Once chosen, the web site (www.propurchaser.com) takes over, keeping its members on top of the market by e-mailing alerts and regularly updating cost-history graphs.
Propurchaser offers members a host of other enriched information services and tools. For example, members can benchmark a supplier’s cost drivers. Then, on demand, the tool shows whether your negotiated price is higher or lower over time than the price the supplier has been paying for his cost inputs.
The tool also enables users to select a blend of commodities to create a benchmark, if what he or she buys is made from several raw materials and/or energy and/or labour. All of these ‘cost drivers’ may be tracked on Propurchaser. The graphs can be easily downloaded into Excel.
Propurchaser members also track commodity prices in US or Canadian dollars. The comparison will clarify whether suppliers are passing back savings that result from changes in the value of the Canadian dollar.
“A critical aspect to effectively managing relationships with suppliers is understanding their cost drivers,” says Propurchaser founder and president Rod Sherkin. “When you know the market price for their cost-drivers, you are negotiating based on true knowledge,” he adds.
“What’s more, when you understand what your suppliers are paying for their commodities, from their production materials to gasoline to the cardboard they use for shipping, you’re in a position of equal footing in negotiations.”
That knowledge gives purchasers a huge advantage. They can take the initiative and drive down negotiated prices as soon as suppliers’ costs go down.
“When I was a purchaser, my suppliers didn’t hesitate to call me to raise the price,” Sherkin says. “However, they sure didn’t call too often to tell me, ‘Good news, my costs are down so I’m passing that saving back to you’.”
With today’s technology, supply chain specialists don’t have to wait for phone calls: they can contact suppliers themselves, deliver the ‘good news’, and capture their fair share of the savings.
PMAC President Robert Dye says there is larger value in the information that Propurchaser provides. “Supply chain management requires more than mastery of procurement tools and processes; it requires vision and insight. Sustained competitive advantage for an organization demands innovative, strategic leadership from supply chain managers,” Dye says.
“Businesses expect their supply chain leaders to have a broad, strategic view and understanding of the business, its market and the role its supply chain plays in establishing and maintaining a competitive edge for the entire organization.
“The market view and knowledge that an organization such as Propurchaser provides can help support the broader view and strategic approach. So we believe that many of our members would benefit, which is why we maintain a partnership with Propurchaser. We see it as providing a lot of value to PMAC members.”
Propurchaser has had a professional relationship with PMAC for five years. PMAC members get a 45-day Propurchaser trial membership as opposed to the normal three-week trial. Once they have made the decision to join Propurchaser, PMAC members get a $400 discount on the annual $1,500 Propurchaser membership fee.
For more information on Propurchaser you can visit the PMAC web site at http://www.pmac.ca and click on the Propurchaser link or you can visit directly at www.propurchaser.com.
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