How can we get price reductions (from suppliers) based on Economic Conditions, Currency fluctuations etc (other than fuel)
In the past few years, Fuel and other factors contributed to price increases, and suppliers increased prices, but how do we incorporate price reductions, specially based on the economic conditions, eg. The currency exchange rate , political unrest ? how can we get the suppliers to incorporate reductions (other than getting quotes from their local currency) , ? what could be the disadvantages of getting quotes from local currencies in the current market conditions?
With our Asian suppliers we had a contract term built in that shared the risk on currency. If the AUD moved a certain percentage from the base price (RFT price) then we discussed revising that base price. If up or down we negotiated a new price. I also made sure that changing currency was an option as well. That way, even though the AUD may be falling/rising, our finance team may still see an advantage in hedging.
As we walked the talk on "strategic partnerships" it was quite straight forward to share the risks.
The contract part is the easy step. Setting up the relationship with suppliers to enable risk sharing is more complicated, especially convincing the stakeholders.
As Cristian has pointed out, there is a lot of information missing in order to provide you with useful direction. There is no single "play" you can use everywhere.
What are you buying?
How much information do you have about your existing costs, how are they broken down, material/utilities/labor/margin etc?
Where are you buying from?
What are you existing Purchasing T&C's?
What are your suppliers Selling T&C's?
What sort of relationship do you have, tactical, strategic, who has the leverage?
If you can provide a little more detail I am sure the people here would respond more.
Without knowing which countries you speak of its difficult to comment.
Generally speaking, when trading across currencies, someone is assuming risk, if I were to trade in a foreign currency I would talk to my finance director about setting up a hedge account in that currency in order to ensure that risk is managed and I can achieve a minimum exposure to negative fluctuation.
If you are wanting to prevent price creep from your suppliers you need to organise your contracts on a granular level as possible. For example, a basic cleaning contract will have overheads/contract management/materials/staffing costs. When the minimum wage goes up 5%, to avoid the whole contract going up 5%, you get a break down under these headings.
If your supplier comes to you with a cost increase proposal based on factors neither of you have control of, e.g. fuel, agree a fuel surcharge for units over X at cost. If it goes below X, you stop paying the surcharge.
Its time consuming, but if in doubt, benchmark.
Thank you for all your valuable input.
apologies for not giving more details,
we are in to sourcing of relocation services, and we source from all regions, almost all countries.
this question came up when we noticed that the Russian Ruble came down significantly due to the Ukrain / Russian tensions in the region,( same with Egypt), but we were not able to take the advantage of the drop in pricing, as the prices quoted were in Euros or USD,
as you correctly pointed out maintain a hedging account and maintain price quotes on contracts on a granular level is the best if quoting in various currencies
We felt that there may be some other areas that we have not investigated in price reduction options, are there any other factors we should investigate when sourcing from a large country base?