I was starting my new job 8years ago and i remember very well at that period, the oil prices was moving upward toward USD50.00 per barrel and everyone was so pessimistic and worry about the future. Now the oil price is >USD100.00 and everyone (at least most of us) are still around and surviving!
As a purchasing manager at that period, i was worry what will the increasing cost of purchased material will do to the bottom line of my employer bottom line. Well, eight years has passed by and the challenges is getting and will be getting more challenging.
These past one year, the impact are much more worsen than previous years as the oil prices is increasing but not only due to the scarcity of supply due to political crisis in the countries concern, but due to the weakening of the USD creating a inflated prices to match the depreciation of the currency against major trading countries currency. The currency situation also directly impacted all the commodities as USD are and still will be a major currency preferred by countries trading with one another.
And if you are working for a organization that rely on the US for your market, then the situation will be much worst due to the economic situation there and a weaken currency is much to the advantage to the US for trading of goods and services. This is due to the Halo effect and buyers from the US will try not to acknowledge the reason for increasing the prices and there is many other companies willing to sell thier product to them.
Thus, as a procurement manager, your job will be more stressfull unfortunately as everyone in the organization will be looking at your position to ensure that the material cost are within the budget and if the prices are "out of this world" then you will need to explain for this situation and start looking for cheaper replacement material.
One example i can relate to this recently, the suppliers of corrugated carton boxes decided to increase the prices due to higher imported prices of Kraft paper and the impact was in the 6 figures to the company bottom line. Supplier has all the backup details for this increase and it is as genuine as a innocent baby crying for milk. To accept this increase meant that we have to increase the selling prices of our product but this at a risk of the buyers looking to review your supply base.
It is very normal for procurement professional to review thier supply base when there is a price increase coz it is (a) part of the job requirement and (b) they are the defender of the organization costing structure.
I then decided to review the supply base of the suppliers and also decided that we should look for alternative material which is available.
That will save the day for the organization. But happen when there is no alternative?
Well, if there is no alternative, the procurement professional has to convince the organization that the price are genuine and prove this by making more alternative sourcing elsewhere. Never two companies will offer exactly the same price for similiar material and that where this is extremely important. If the current price is the the most competitive, then you have done a job you suppose to do it in the first place.
We can always review and study companies financial reportings and one of the reason a company achieve higher turnover but reduce margin or even losses is due higher cost of operation and these include a big bulk of raw material cost.
Thus, handling price increase is one sensitive area facing procurement professional everywhere around the world and especially if you are based in a country where the economy rely on cheaper product exporting to developing countries.
This is a highly stressful occupation during this time and every consumers need to remember when making purchases on the invisible professional making sure thier organization stay in business by making sure the price is of fair value to the organization and everyready to go to battle to ensure the bottom line stay healthy.
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