Pricing in Times of Uncertainty

Maintaining a good relationship with your vendors could help you weather high prices.

It’s like a broken record: Oil is trading higher, the dollar continues to weaken, and the prices of thousands of goods are rising to unprecedented levels. Many have lost money, some have lost jobs, and all are wondering when this will end. The better question is: Have we learned anything along the way?

If the market’s continued volatility still has your company searching for ways to control costs, maintain supply, and forecast the future, consider the following strategies.

Assess your Risk Tolerance

With prices escalating so quickly, it is natural for chains to seek out lower-cost providers, but purchasing agents should thoroughly analyze the potential risks associated with such an endeavor. For many commodity goods, market dynamics have shifted considerably in favor of the seller as a result of increased global demand. As demand increases, so too does competition among suppliers. Consistent with basic economic principles, when demand rises more rapidly than supply, price increases are an inevitable outcome. Consider then, if the price of a commodity rises shortly after committing to a low-cost vendor. The purchasing agent, once a hero for obtaining a lower price, may now be unable to secure supply because the vendor’s low margin pricing cannot compete with the competition.

Should you decide the cost benefits outweigh the potential risks, be sure to validate your choice before ceasing business with the original supplier. Having to return to the first vendor after supply problems is not only humiliating; it can also be very costly.

Know your Vendors

Start thinking of your vendors as business partners, not simply providers of goods that come and go. Developing successful partnerships with suppliers can provide extraordinary benefits. Researching pricing trends and the factors driving market conditions for each product would be an impossible task for purchasing agents responsible for sourcing hundreds or even thousands of goods. Instead, turn to your vendors as a resource for market data, and insist that they be prepared to share industry news, pricing trends, and market insights at your request. The ability to readily provide this pivotal information separates ordinary vendors from strategic sourcing partners.

Strong, lasting partnerships between a vendor and a restaurant chain foster honesty and supportiveness.

Purchasing agents stand much higher odds of gaining a transparent picture of market conditions if the vendor does not have to fear losing the business on account of some bad news regarding pricing trends. Vendors may also be more willing to absorb price increases on your behalf if they have some assurance that you will not abandon them at the first sign of cheaper prices.

Explore Alternative Products

Seek alternative products that could provide cost savings or improved efficiency. Here again, the strategic sourcing partner possesses the product knowledge required to assess your needs and will be prepared to recommend alternatives when substitute products exist. For foodservice customers, for example, substituting vinyl gloves in place of latex could bring substantial cost savings over time. For some, these product substitutions may serve only as a temporary solution, but also relief in times of rising prices.

Of course, substitutions should be tested before committing entirely. Cost savings look great on paper, but can become the source of skepticism if the quality does not meet the standards of the end user.

Maintaining a good relationship with your vendors could help you weather high prices.

It’s like a broken record: Oil is trading higher, the dollar continues to weaken, and the prices of thousands of goods are rising to unprecedented levels. Many have lost money, some have lost jobs, and all are wondering when this will end. The better question is: Have we learned anything along the way?

If the market’s continued volatility still has your company searching for ways to control costs, maintain supply, and forecast the future, consider the following strategies.

Assess your Risk Tolerance

With prices escalating so quickly, it is natural for chains to seek out lower-cost providers, but purchasing agents should thoroughly analyze the potential risks associated with such an endeavor. For many commodity goods, market dynamics have shifted considerably in favor of the seller as a result of increased global demand. As demand increases, so too does competition among suppliers. Consistent with basic economic principles, when demand rises more rapidly than supply, price increases are an inevitable outcome. Consider then, if the price of a commodity rises shortly after committing to a low-cost vendor. The purchasing agent, once a hero for obtaining a lower price, may now be unable to secure supply because the vendor’s low margin pricing cannot compete with the competition.

Should you decide the cost benefits outweigh the potential risks, be sure to validate your choice before ceasing business with the original supplier. Having to return to the first vendor after supply problems is not only humiliating; it can also be very costly.

Know your Vendors

Start thinking of your vendors as business partners, not simply providers of goods that come and go. Developing successful partnerships with suppliers can provide extraordinary benefits. Researching pricing trends and the factors driving market conditions for each product would be an impossible task for purchasing agents responsible for sourcing hundreds or even thousands of goods. Instead, turn to your vendors as a resource for market data, and insist that they be prepared to share industry news, pricing trends, and market insights at your request. The ability to readily provide this pivotal information separates ordinary vendors from strategic sourcing partners.

Strong, lasting partnerships between a vendor and a restaurant chain foster honesty and supportiveness.

Purchasing agents stand much higher odds of gaining a transparent picture of market conditions if the vendor does not have to fear losing the business on account of some bad news regarding pricing trends. Vendors may also be more willing to absorb price increases on your behalf if they have some assurance that you will not abandon them at the first sign of cheaper prices.

Explore Alternative Products

Seek alternative products that could provide cost savings or improved efficiency. Here again, the strategic sourcing partner possesses the product knowledge required to assess your needs and will be prepared to recommend alternatives when substitute products exist. For foodservice customers, for example, substituting vinyl gloves in place of latex could bring substantial cost savings over time. For some, these product substitutions may serve only as a temporary solution, but also relief in times of rising prices.

Of course, substitutions should be tested before committing entirely. Cost savings look great on paper, but can become the source of skepticism if the quality does not meet the standards of the end user.