We worked with a company needing help with its Commercial department struggling to manage cost price increases from suppliers - we were asked to put together a process in place that would minimise the cost jumps, control and delay their implementation, and mitigate the financial impact.
We developed a new cost price increase policy all suppliers had to adhere to, forcing them to justify every request with detailed evidence and legitimate reasons. This was supported by useful tools enabling the validation of the requests, for example how the individual raw material price changes should affect the cost of a final product. The new policy also stated that any cost price increases, if proved valid, could only be implemented 3 months after the original request was made.
A significant proportion of cost increase requests was reduced or negotiated away completely. The negative margin impact was minimised. The extended period of the cost increase implementation gave our client the time to obtain counter quotes from alternative suppliers and forward buy stock at lower prices from the incumbent ones - we provided a tool to calculate the benefit of purchasing large volumes of stock early and the associated storage and warehousing costs to ensure it was the right decision on the commercial level.
The new procedure and tools empowered the Commercial team to negotiate better. The clear policy provided guidance for both, the client and vendors, how any cost increase requests should be handled. The Commercial team knew what to do while the suppliers were aware what was required from them. The client’s team was finally in the driving seat, confidently arguing away any unjustified requests.