Supplier Price Analysis: A Guide for Purchasing, Accounting, and Financial Analysts

Supplier Price Analysis: A Guide for Purchasing, Accounting, and Financial Analysts

Supplier Price Analysis: A Guide for Purchasing, Accounting, and Financial Analysts

Supplier Price Analysis: A Guide for Purchasing, Accounting, and Financial Analysts

Synopsis

This book presents a thorough explanation of Supplier Price Analysis (SPA), a technique which can be used for analyzing a supplier's price quotation by developing a basic pricing model by using information readily available from that supplier's annual reports, trade associations, public data bases, standard ratio analysis, and product specifications. Two complex buying decisions are analyzed in detail to demonstrate the application of SPA methodology to actual buying situations.

Excerpt

At some point, every one of us has purchased some good or service with the uncomfortable feeling that we had just been taken. The product was overpriced, shoddy in manufacture, or of poor quality. This is a disquieting situation, since we feel a personal affront, having been cheated by a combination of our own stupidity and shrewd salesmanship. Fortunately, the feeling does not occur frequently.

This feeling of frustration is compounded when the price of the item or service purchased obviously far exceeds its perceived value. There are hundreds of examples. Consider the airfare from Kansas City to St. Louis. The current fare on TWA is $295.00 each way. Since the distance is 270 miles, that comes to $1.09 per mile. Recently, Southwest Airlines announced service between the two cities for an everyday fare of $59.00 each way, or $0.22 per mile. No doubt TWA will reassess its position--or fly empty planes back and forth.

The feeling of frustration occurs every time prices increase with no apparent reason or when flimsy prevarications are used to justify the increases. When automobile prices rise each year, labor is always the culprit. Yet the union labor in a car is less than 10 percent of its cost to manufacture. What we pay for is billions of dollars for advertising, highly paid executives, and extravagant overhead.

In the industrial arena, the frustrations are compounded. Buyers are regularly subjected to price increases for suppliers, yet they are expected to hold the line on material costs. This vexing situation is complicated by the fact that buyers have little or nothing to say about the design of the product. In some instances, they are told what to buy and from whom to buy it. Then they are expected to negotiate favorable prices. This is like being told to fly from Kansas City to St. Louis on TWA but pay considerably less than $295.00 each way. It is an impossible situation.

Although tempted to give up in complete frustration, the buyer has other options. One of those options is the subject of this book--to look carefully at the supplier, get all available information about that supplier, and attempt . . .

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