PurchTips - Edition # 162
Commodities Prices: Managing The Insanity
By Charles Dominick, SPSM, SPSM2, SPSM3
Are Volatile Commodities Prices Driving You Crazy?
On the Supply Excellence blog, Mike Petro - Ariba's Senior Category Manager for Metals - wrote "The days of holding annual negotiations to set fixed price direct material contracts are over" and stressed the need to increasingly use price adjustment clauses in contracts with raw materials suppliers (http://tinyurl.com/45tqj6). I recently had the chance to discuss with Mr. Petro some common questions buyers have in this time of volatile commodities prices.
Why Are Price Adjustment Clauses Necessary? More than ever, suppliers are refusing to honor their commitments for long-term fixed pricing. "There are cases of broken contracts all over the place," says Petro, who has observed that not even the threat of legal action deters some suppliers in this time of rising commodities prices. Petro also finds some suppliers refusing to quote fixed prices for new projects, saying "We are seeing suppliers that will actually drop out of a sourcing project based on the fact that they can't justify the risk of trying to lock in a fixed price and still be competitive."
What Should Price Adjustment Clauses Be Based On? Price adjustment clauses should be closely tied to the indexes of the applicable cost drivers for the commodity. A cost driver is "any cost that impacts the final price of a commodity," according to Petro. For example, he lists iron ore, scrap, fuel, energy, duties, tariffs, taxes, and currency exchange rates as cost drivers for steel. It's important to know how the cost drivers are changing and the proportion of each cost driver's impact on the final price for the commodities that you are buying.
How Often Should Prices Be Reviewable When Using A Price Adjustment Clause? "The time frame is dependent on the commodity and the volatility," Petro shares. "Most of the buyers we work with are looking at things quarterly," but monthly may be appropriate for some commodities.
(keep reading for a FREE Offer)
Spotlight On Professional Development Opportunities
Are you tired of not getting enough opportunities, respect, and money out of your purchasing career? Well, guess what? Nothing will change unless you take action towards becoming a world-class purchasing professional.
You see, today's employers refuse to reward employees for yesterday's skills.They demand that purchasing professionals like you use the most modern skills and achieve unprecedented results. They want you to save more money, achieve better operational performance, and reduce risk.
Is lacking a purchasing certification keeping you from getting the results, opportunities, respect, and money that you want out of your career? Today's employers refuse to reward employees for yesterday's skills. They want you to save more money, achieve better operational performance, and reduce risk. They demand that purchasing professionals like you achieve unprecedented results and without the most modern skills that can be a challenging feat!
So how can you acquire the most modern skills, achieve meaningful results, and convincingly prove your capabilities to today's employers? There is an impressive purchasing certification program that will teach you what you need to accomplish all of this and more. It is the SPSM® Certification, earned by completing the Senior Professional in Supply Management® Program. And you could earn it in less than a year - maybe even much less than a year!
Earning your SPSM® Certification by completing the Senior Professional in Supply Management® Program is the action to take if you want to bring the most modern purchasing practices into your organization and achieve your career potential. Learn how to earn your SPSM® Certification (and perhaps get an iPad) (with the option of getting a Study Guide on an iPad) at:
Distinguishing yourself as an achiever in purchasing is key to sustaining a rewarding career, even in these difficult economic times. Earning your SPSM® Certification by completing the Senior Professional in Supply Management® Program is to take if you want to bring the most modern purchasing practices into your organization and achieve your career potential. Learn how to earn your SPSM® Certification (and perhaps get an iPad) at:
Earning your SPSM® Certification by completing the Senior Professional in Supply Management® Program is the action to take if you want to bring the most modern purchasing practices into your organization and achieve your career potential. And if you sign up for the Senior Professional in Supply Management® Program on or before May 31, 2008, SPSMSM Certification Program on or before 4/30/2007, you also get these and other bonuses valued at over $700:
To learn how to earn your SPSM® Certification and get these valuable bonuses, visit:
Earning your Senior Professional in Supply Management® (SPSM) Certification is the action to takeif you want to bring the most modern purchasing practices into your organization and achieve your career potential. Learn how to earn your SPSMSM Certification at:
Learn how to earn your SPSM® Certification at:
The Latest Purchasing News!
Want to learn more about today's topic? Then check out my podcast interview with Bill Dorn! Podcasts are audio files that you can listen to on your PC, download to your iPod/MP3 player, or burn to CD. Our Purchasing & Supply Management Podcast SeriesSM is a new way for us to help you succeed!
It's absolutely FREE to download the audio. Add it to your collection of great purchasing learning material!
Download This And Other Podcasts For FREE At
Copyright 2008. This article is the property of Next Level Purchasing and may not be copied or republished in any form without the express written consent of Next Level Purchasing. Click here to request republishing permission.
This is the Web-based version of this article. Click here for the printer-friendly version.
Other Editions of PurchTips:
Free Procurement Training & Certification Starter Kit
This Starter Kit gives procurement professionals like you a clear idea on what it will take to become certified. You'll get an excellent feel for what you will need to learn and how long it will take.
Included in your free Starter Kit:
Together, these materials will help you decide how well the SPSM® Certification can help you achieve your career goals.
So, what are you waiting for? Begin your pursuit of a more rewarding procurement career get your Procurement Training & Certification Starter Kit now by signing up for a free NLPA Basic Membership!
If you are already a member of the NLPA, click here to login and visit the "Starter Kit" tab to access these resources.