Trust Your Suppliers, Not Their Data

As procurement professionals, we need to trust our suppliers: their products, delivery, quality and service. If we can’t trust them, we probably shouldn’t be doing business with them. 

At the same time, we know that trust does not mean unquestioned acceptance – especially when it comes to the data suppliers provide when they are trying to justify a price increase. We are all in business to make all the money we can. If a supplier has to choose between his bottom line and yours, he will pick his. And he should – it is his job to do so!

Depending on your supplier to provide you with unbiased information is like asking the proverbial fox to guard your henhouse. This is when procurement steps into the critical role of information validator. The company is relying upon us to determine whether the supplier’s cost assertions are true.

We recently asked procurement professionals, “Where do you go for information to validate price increases when your suppliers point to higher input costs?”

30% of them told us that they go to the very same suppliers that asked for the increases, usually because they don’t know where else to find the information quickly.

Good news: finding outside sources of cost information has never been easier. A wealth of data about raw materials, labor and energy abounds on the internet, and many services are either free or priced such that they pay for themselves very quickly.

Having your own information sources is very important for two reasons:

First, they allow you to gauge the reasonableness of a supplier's request. For example, I remember when two leading sources of steel cost information disagreed on price movement: one said up, the other down. Not surprisingly, the “up” figure was the one quoted by suppliers.

Secondly, outside sources will also alert you when your suppliers' costs go down - something you are not likely to discover when you need to if you depend solely on suppliers for information. We can hardly fault them; no one wants to lower their prices voluntarily.

I’ll be speaking about the importance of creating supplier-cost transparency at the ISM 2019 conference in Houston, TX: April 9th at 10am in the Challenge track. Join me for real life examples and lessons learned!