The “Great Recession” had an unexpected impact on the relationship between companies and their suppliers. At the depths of economic despair, companies reported concern for the welfare of their suppliers at roughly the same rate that they expressed worry over their own fortunes. Economic catastrophe, rather than straining these relationships, seems to have strengthened them in many cases.
Two recent trends may reverse that dynamic. One is the strengthening of the U.S. economy in general, and the supplier sector in particular. The most recent Purchasing Manager’s Index, which uses factors like production levels and new orders to gauge the health of suppliers, shows a gradual return to pre-recession levels.
The other trend is the phenomenon known as “re-shoring.” As the price of manufacturing continues to climb in places like China, U.S. companies are beginning to relocate manufacturing to neighboring countries like Mexico, in order to take advantage of lower transportation costs.
Though both trends carry different implications, they’re likely to share at least one common effect: increased prices. Basic economics dictates that increasing demand pushes prices up. And while some suppliers are moving operations to Mexico in a bid to keep costs low, “re-shoring,” may actually reflect a rising low-cost manufacturing baseline.
Thus, the question isn’t whether prices will rise, but by how much. While some inflation is normal amid improving economic conditions, companies should keep a close eye on expenditures and negotiate with suppliers to lock in favorable terms.
To do so, companies need two things: solid information and the right negotiating tactics. Here are some suggestions for both: Continue reading “Using CMMS to Renegotiate Supplier Contracts: Information is Leverage”
