A subscriber to PurchTips today asked my opinions on how to deal with industry-wide price increases due to buying in an inflationary market. I thought that I’d post an excerpt here so that more than one person can benefit from my advice.
My view is that purchasing should always challenge price hikes except when doing so will increase the risk to the continuity of supply.
I also feel that purchasing professionals need to have good forecasting skills to estimate where prices are going.
If increases are expected to continue, then locking in a long-term deal at today’s prices is a good idea.
However, if the purchasing professional feels that prices are peaking, the last thing one would want to do is lock in a long-term deal at today’s price. When prices peak and subsequently decline, a hand-to-mouth sourcing strategy works best until the prices bottom out at which time a long-term deal makes sense.