Paying the Negotiated Price?
February 4, 2015
This blog post is a preview of the white paper, Paying the Negotiated Price? A Baseline Pricing Model for Improving Price Visibility and Confidence.
Maybe P2P Automation has been implemented in your company for years. Or, you may have just finished an end-to-end P2P implementation. In either case, contracts are uploaded, hosted catalogs are stocked, punch-out catalogs are linked, approvals are flowing, invoices are coming in, and payments are going out. All on time, like clockwork.
Still, you have that sinking feeling, “How do I know we are paying the negotiated prices?”
Too often, Supplier Management stops after contracts are signed and you’ve left the negotiating table. Suppliers are left to enforce their own contracts by default and executives are unsure if concessions are being honored, or if carefully executed negotiations are paying off once invoices start flowing in.
With a Hosted Catalog, your organization manages pricing and you have the ability to implement contract terms. In other scenarios, your pricing is dependent on your suppliers and their prices flow directly into your payment.
Even with the best supplier partnerships, and the best of intentions, slippage is possible and your organization pays the price. In any case, knowing that you are paying the negotiated price is essential to a world-class procurement organization.
What is the negotiated price? How do you know you are paying it?
Solution: Baseline Pricing Model
The Baseline Pricing Model is a methodology for establishing the negotiated prices for products that you buy, in which you ensure that suppliers are invoicing you appropriately at those prices.
Phase 1: Price Baselining
Like other forms of Baselining, the goal of Price Baselining is to determine what the negotiated price is. Prices can be structured in a variety of ways; some are contract-defined while others vary with the market. Even with complex or fluctuating pricing models, there is a way to know the negotiated price …and whether you are paying it.
Phase 2: Systematic Invoice Review
The purpose of the Systematic Invoice Review is to create a process of ongoing improvement by comparing invoices to the Baseline and taking action based on the results. These results become a powerful piece of business intelligence that is key to the next phase – Supplier Management. They are also used during the next cycle to tune your Invoice Selection Criteria and ensure you are focusing your attention where it is needed most.
Phase 3: Supplier Management
Supplier Management is indispensable at two points in the Baseline Pricing Model:
• During Launch
• After Invoice Review
When your organization launches a Baseline Pricing Model, it is important to educate your suppliers on the process. You won’t share every detail, but communicating your expectations before presenting summarized results, makes it clear to suppliers what to expect.
After Invoice Review
The results of your Invoice Review show whether or not suppliers are meeting expectations. Having the discipline to conduct Invoice Reviews regularly and communicate the results shows suppliers that you are serious about pricing compliance.
While specific actions vary from case to case, the message should remain constant — every invoice must be correct.
A well-run P2P Automation suite is an important step in Supplier Management, but it’s not the end of the story. There’s still opportunity for process failure and human error, and the Baseline Pricing Model constitutes a powerful set of tools for identifying pricing problems and correcting supplier behavior.
The Baseline Pricing Model is a flexible, robust set of concepts that will empower your organization to effectively correct invoice pricing issues while bringing confidence to invoice pricing.
For more information on how Shelby can help your company optimize procurement, contact us at email@example.com.
The Shelby Group