Effective pricing

The decline in April’s headline inflation to 4.8 percent versus March’s 6.4 percent might be a harbinger of “hopeful” things to come this quarter. Within the purchasing arena, however, inflation is just one of the variables where commodities and/or services in question are indexed, relative to a host of other variables that are part of the negotiation process. In fact, timing a “turnaround” has become more complicated these days, but not for those who are able to read through markets well.

For business enterprises that are still locked within the “traditional” concept of price negotiation, anything lower than their prior purchase price is considered “good.” For the smarter ones who managed to ride on an e-commerce approach, however, “lowest” should be benchmarked relative to the industry as well as expectations about the general economy. Moreover, adequate analysis within an acceptable yet immediate timeframe should be included, covering key components that make up the selection round.

Within an e-Marketplace shared by corporate and mid-sized players, “benchmarking” is done with ease and convenience. This is facilitated through the presence of co-team players who assist in the price break-up process. For example, granting everything has been met relative to accredited suppliers that will be participating in the negotiation round, purchasing planners are more apt to map out their pricing objectives, simply by dissecting what should and should not be included in the pricing negotiation. Taxes levied on entities are generally treated as “pass-on” cost. Here, purchasing planners must be in the loop if necessary custom duties are prescribed and made integral to a supplier’s pricing package. It is also for this reason that purchasers should be aware of other tax incentives that may have been granted to a participating supplier, which consequently raises their competitiveness in the process.  With incentives accorded by the Board of Investments, sectors that cater to either labor- and/or capital-intensive projects specifically are in a better position to compete, especially when production expansion initiatives are carried out. Next, thorough understanding relative to item specification must be made, and variables that are typically carried by producers of the items being purchased. If the goods being procured are processed domestically, basic components are taken for analysis: labor, lease/rent, electricity charges, and other raw materials required for the overall production process.  For importers, however, the computation is typically straightforward, as margins and/or distribution charges as well as warehousing would be included. In this scenario, volume aggregation would be more crucial to enable buyers with necessary discounts in the process.

The other volatile factor covers foreign exchange (forex) components. For some large buyers, inventory level management is critical relative to the prospective supplier being assessed. If a large part of their inventory has been procured at a “fairly” high foreign exchange rate vis-a-vis the total billing settlement (e.g., peso-based), chances of procuring an item would be expensive. Here, buyers may, at their discretion, map out a plan with a strategic supplier by possibly sharing “incentives” relative to the overall financial planning. In the end, both buyer and supplier may work on a scheme that could produce a “fairly blended” forex costing component that would be acceptable in achieving an objective to reduce the goods and/or services being sold. 

Sometimes, procurement planners who are also in the loop relative to finance may also consider other “one-time” charges (e.g., mark-to-market losses), which may or may not be included in the pricing process. This could only be effected when adequate information is submitted in a timely fashion to buyers, especially when it comes to data updates for suppliers concerned. Within e-Marketplaces, data gathering related to BIR-submitted financial statements are complied with ease, especially those that have already gone into assisting in the supplier database update process.

In the end, not all variables should be indexed to inflation until thorough analysis has been made based on any specific item that’s being procured. Since all admin-tied tasks are outsourced via a friendly e-Marketplace, procurement planners are more able to practice their expertise in spotting where to specifically cut on cost without necessarily hurting prospective supplier-partners in the process.

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The author is the senior business development associate of SourcePilipinas.com. For queries, e-mail [email protected].