Recovering from unprecedented price increases – 4 tips for using a commodity-by-commodity approach

Have you experienced unprecedented upward pricing pressure over the past 3 years?  

Purchasing leaders are telling us that they are under increasing pressure to increase cost savings efforts and results.  This has been a challenge to say the least, with unrelenting price increases for the last 3 years.  

When working with clients on engagements, we are finding that a commodity-by-commodity review of company spend can often turn up untapped, easily implementable savings.   

Here are 4 tips on starting commodity savings initiatives: 

1. Take the time to write down the questions you should be asking about each commodity that will help you identify which commodities have a savings potential.   

2. Here are some of the questions we ask clients when assessing the savings potential on a commodity.  Answering “No” to some or all the following questions is indicator of potential cost savings:   

• If pricing has increased in the past three years due to raw material costs, are prices being adjusted downward as commodity prices fall?  
• Has a method for calculating should-be costs for the commodity been established?   
• Are there ample suppliers in the supply base to generate pricing pressure?   
• Have costs for design changes been analyzed?   
• Have non-piece price Total Cost of Ownership (quality, inventory, shipping, packaging, testing, etc.) been reviewed?   
• Are there any inhibitors to changing sources?   
• Is there a cross-functional process for strategic commodity management on this commodity?   
• Do buyers frequently review the suppliers manufacturing processes with the objective of understanding manufacturing costs and identifying cost reduction opportunities?   

3. Ask the above-listed questions for each of your commodities.  Prioritize commodities for further analysis and review based upon the answers generated.   

4. The development of cost catalogs and linear and/or multivariable models identifies areas of investigation for cost reduction including:  

• Parts or services with similar requirements but differing prices  
• Suppliers who quote inconsistently  
• Design attributes driving cost but not providing functionality  

To read more about developing strategies to claw back price increases that were granted to suppliers in the past three years, click here for a blog APD Founder Jeoff Burris wrote about clawing back price increases in 2023.  

Buyers often find untapped commodity cost savings in the projects they complete as a part of our Cost Management Certification and Commodity Leadership Certification programs.   

• More info on the Cost Management Certification Training Program 
• More info on the Commodity Leadership Certification Training Program