When you decide to purchase a car, do you buy the first car you find online or at the dealer’s lot? In the best case, you complete a range of research using the resources available to you—the Internet, pricing guides, and dealer visits—to make your decision. Applying this extra effort helps you stay within your budget and get the car you want.
When making a buying decision, looking at the big picture allows you to comprehend fully the price a supplier is charging. Investigating the details makes it possible to determine whether it is the right price.
The prices an organization pays for its materials, products, and services affect its ability to compete and remain profitable in today’s business climate. Purchasing managers must ensure that their organizations pay competitive prices, so they continuously scan the market and frequently use price analysis to obtain the best available pricing.
Price analysis compares a seller’s price and associated terms against reasonable price benchmarks without evaluating the separate elements of the seller’s cost and profit. In other words, price analysis involves looking at the big picture in competitive buying situations for items where price is the key factor in supplier selection. In such situations, price analysis is always the preferred method for comparing suppliers’ offerings because it is easier, faster, and often more objective than cost analysis.
Effective use of price analysis, however, requires you to look beyond the big picture and consider the details of:
- The market, including:
- Buyers’ and sellers’ markets.
- The number of buyers and sellers in the market.
- The constantly shifting conditions.
- Supplier pricing strategies, including:
- How to optimize revenue and profits.
- A cost-based pricing strategy.
- A market-based pricing strategy.
You can use your knowledge of markets and supplier pricing strategies to leverage your buying power. You can also compare supplier pricing to other sources of data to eliminate bias and identify the best deal.
How could an expanded understanding of price analysis affect your company’s bottom line? The Accenture Academy course Supplier Pricing Optimization Overview explores the when, what, and where of effective price analysis.