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Is Your Commodity Strategy an Empty Suit?

November 11, 2020 by Jeoff Burris, Founder and Principal Leave a Comment

Over the past 16 years we have looked at hundreds of commodity strategies. Most often the strategies are contained in long PowerPoint presentations designed to demonstrate how well the supply base is aligned with the company’s long-term strategies.

Almost all provide good analysis of the size, shape and form of the supply base that is required to support their company’s future demand requirements.

Most identify the expectations suppliers need to meet in support of quality, technology and delivery performance and strategies to get the supply base to meet the expectations.

What has been missing from 80-90% of the strategies we have reviewed has been well-defined strategies for cost management.  From a purchasing perspective this is an empty suit.


Gain the skills, knowledge, and tools to answer the fundamental cost management questions by becoming a Certified Purchasing Cost Management Professional:

  • Click here to Learn about our on-line certification program

Commodity cost strategies need to answer the four questions we believe are fundamental to commodity cost management:

  • What does it cost?
  • What should it cost?
  • What is the plan to close the gap?
  • And if the gap is closed or close to being closed – what is the plan to reduce the should-be costs.

What differentiates the 10-20% of organizations that have effective commodity cost strategies?  They have the following put in place:

  • A well-developed set of cost tools like open book costing, regression models, and linear pricing models.
  • Training that covers how the tools should be used and how negotiations are to be conducted.
  • A methodology to help commodity leaders the cost tool that will be most effective for their commodity.
  • Metrics to measure the effectiveness of commodity cost management.

 

 

 

Filed Under: Blog

Jeoff Burris, Founder and Principal

About Jeoff Burris, Founder and Principal

Jeoff founded APD after spending 20 years in the automotive field where he became a recognized authority on procurement processes in the industry. Burris, a noted builder of high performance teams, led purchasing staffs at Ford Motor Company, Metaldyne and Intier Automotive Seating where they were able to consistently save money on procurement costs and significantly improve related processes as well.

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