A subscriber to PurchTips today asked my opinions on how to deal with industry-wide price increases due to buying in an inflationary market. I thought that I’d post an excerpt here so that more than one person can benefit from my advice.
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My view is that purchasing should always challenge price hikes except when doing so will increase the risk to the continuity of supply.
I also feel that purchasing professionals need to have good forecasting skills to estimate where prices are going.
If increases are expected to continue, then locking in a long-term deal at today’s prices is a good idea.
However, if the purchasing professional feels that prices are peaking, the last thing one would want to do is lock in a long-term deal at today’s price. When prices peak and subsequently decline, a hand-to-mouth sourcing strategy works best until the prices bottom out at which time a long-term deal makes sense.