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Information | Analytics | Expertise
© 2015 IHS / ALL RIGHTS RESERVED
PRICING & PURCHASING
BENCHMARKING REPORT
MARCH 2015
Capturing cost savings amidst volatile commodity markets
© 2015 IHS
Introduction
Concessions should be dominating your Supplier negotiations, are you benefiting from the dramatic
commodity price declines seen in the market? Buyers need to be closely evaluating their suppliers cost
structures and expect significant cost savings in the year ahead. This benchmarking report looks at key
trends in procurement focusing on how companies are mitigating the risks of commodity price volatility
today, and capturing maximum savings from their suppliers.
This survey focuses on key topics that procurement teams care about most today, including negotiation
strategies, top spend categories, cost savings pressures, risk and performance goals.
In this report you will find:
• Summary of key findings
• Cost savings techniques being used by your peers
• Observations and key guidance from procurement professionals and IHS economists
We hope you’ll find the insight in this report beneficial. Thank you for the time and insight of the many
supply management professionals who have contributed to this report. We look forward to continuing our
dialogue with you.
© 2015 IHS
Research highlights
Of procurement
teams have a
YOY increase in
their savings
target
Negotiation Strategy Savings Targets Top Challenges
89% of
respondents still
report moderate to
high risk levels for
their spend
categories
of buyers rely on
‘Market Intelligence’ as
their primary method for
capturing cost savings
followed by:
Cost Insight
Linking contacts to
cost escalators
Risk 2-5% (37%)
5-10% (34%)
10%+ (12%)
Lack of time &
resources
Talent shortages
Lack of visibility
© 2015 IHS
Key Findings
4
Negotiation strategies: • 65% of respondents actively negotiate 40% or more of their total spend, 64% expect to see that number rise in 2015
• 72% of respondents cite ‘Better Market Intelligence’ as their primary method for capturing cost savings
Spend categories: • 47% of respondents expect to spend the most on Ferrous metals in 2015, followed by Nonferrous metals (35%), and
transportation (25%)
• Despite today’s low-cost environment, 89% of respondents still report some level of risk for their spend categories
Cost savings targets: • 37% reported a savings target of 2-5% while 34% reported a savings target of 5-10% in 2015
• Supply chain and procurement teams are being asked to save even more with 64% reporting a YOY increase in their
savings target
Performance: • 68% of respondents report having a framework to help quantify/benchmark their buying performance
Top challenges:
#1 lack of time/resources (64%)
#2 talent shortages (39%)
#3 lack of visibility (29%)
© 2015 IHS
Approximately what percentage of your spend do you actively negotiate?
5
20.20%
13.50%
27.90% 26.90%
10.60%
1.00%
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
30.00%
1-20% 20-40% 40-60% 60-80% 80% or more Do not know
© 2015 IHS
Are you planning to increase that percentage in 2015?
6
Yes 64%
No 20%
Unsure 16%
© 2015 IHS
How will your company capitalize on falling material costs?
7
10.60%
24.00%
52.90%
54.80%
54.80%
72.10%
0.00% 10.00% 20.00% 30.00% 40.00% 50.00% 60.00% 70.00% 80.00%
Other
Hedging
Should cost modeling
Linking contracts to price escalators
Cost insight
Better market intelligence
Other methods used to capitalize on falling material costs?
8
We have agreements with some suppliers which include regularly scheduled cost/price reviews that
include raw material cost based adjustments. We plan to approach selected suppliers with
significant exposure around the materials that have moved downward to ask them for price
reduction.
Encouraging suppliers to obtain this same market intelligence we use from
IHS. Many do not take advantage of any market intelligence to help their own
costs.
Most of our agreements are tied to
material indexes or hedging.
Connecting Suppliers into a consortium to allow for higher volume buys
on key materials - better pricing.
We help first-tier suppliers in sourcing and risk
reduction strategies, to reduce our own exposure.
“ ”
“
” “
”
“
”
“ ”
© 2015 IHS
What spend categories do you expect to spend the most on in 2015?
9
1.90%
11.50%
12.50%
13.50%
14.40%
15.40%
16.30%
17.30%
21.20%
23.10%
25.00%
34.60%
47.10%
0.00% 5.00% 10.00% 15.00% 20.00% 25.00% 30.00% 35.00% 40.00% 45.00% 50.00%
Rare earth metals
Building materials
Paper and packaging
Other
Energy Products
MRO
Wages and benefits
Electronic components
Industrial machinery and equipment
Chemicals
Transportation
Nonferrous metals
Ferrous metals
© 2015 IHS
How risky do you consider your spend categories?
10
11%
52%
34%
3%
Low risk
Average risk
Moderate Risk
High Risk
© 2015 IHS
Do you have a framework to help quantify/benchmark your buying performance?
11
Yes 68%
No 20%
Unsure 12%
© 2015 IHS
With respect to recent falling prices, what is your savings target for 2015?
12
8.70%
36.50%
33.70%
11.50%
9.60%
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
30.00%
35.00%
40.00%
1-2% 2-5% 5-10% 10%+ Do not know
© 2015 IHS
With respect to recent falling prices, what is your savings target for 2015?
13
25.00%
9.09%
14.29%
30.00%
7.32%
25.00%
36.36%
14.29%
40.00%
43.90%
66.67%
28.57%
66.67%
40.00%
25.00%
36.36%
28.57%
30.00%
43.90%
33.33%
28.57%
33.33%
40.00%
25.00%
18.18%
42.86%
4.88%
42.86%
20.00%
Aerospace & Defense
Autos, OEM
Chemicals
Consumer & Retail
Diversified Manufacturing
Energy - Power
Energy - Distribution
Mining & Metals
Engineering, Procurement &Construction (EPC)
1-2% 2-5% 5-10% 10%+
© 2015 IHS
How does your 2015 savings target compare to your 2014 savings target?
14
Significantly more 11%
More 52%
About the same 35%
Less 2%
© 2015 IHS
Today, what are the most significant challenge(s) your procurement organization faces in working to meet business goals and objectives?
15
9.60%
12.50%
12.50%
22.10%
23.10%
28.80%
38.50%
64.40%
0.00% 10.00% 20.00% 30.00% 40.00% 50.00% 60.00% 70.00%
Lack of management support
Outdated technology
Other
Poor insight
Inability to benchmark performance
Lack of visibility
Talent shortages
Lack of time/resources
© 2015 IHS
About the participants
16
Asia 7%
Canada 1%
Europe 6%
Germany 3%
Ireland 1%
North America 79%
South America 3%
Region
Diversified Manufacturing
43%
Autos, OEM 14%
Consumer & Retail 11%
Energy - Distribution
8%
Aerospace & Defense
7% Chemicals 7%
Energy - Power
7%
Mining & Metals
3%
Industry
© 2015 IHS
Advice for buyers
• You should see flat pricing at worst for many of your purchased
products
• Now is the time to hold your suppliers accountable to price de-
escalation clauses in longer-term agreements If you have linked your contract to an appropriate price index(es), then you should see
slower or falling prices for many products you are buying
• You should also consider hedging to lock in lower commodity prices
• There are a few areas that may present upward pressure but should not
prevent downward pressure in your supply chain
• Use cost modeling and the Purchasing Analyzer to help quantify the
“fair” price to request from suppliers
17
About the Author
18
IHS Pricing & Purchasing Service, a part of the IHS Supply Management solution, delivers
timely, accurate price forecasts and supplier cost analyses, helping companies ensure consistency, increase
visibility and maximize procurement spend. IHS can help you see where prices have been and where they
are going with a database of thousands of price, wage and input cost forecasts and more than 500,000
historic data concepts.
IHS provides a roster of commodity experts and industry analysts to help you:
• Meet and sustain cost savings targets
• Manage price volatility for critical commodities
• Foster agility to maintain profitability
• Understand material input and supplier costs
• Transform procurement from tactical to strategic
• Quantify material inputs and supplier costs
Learn more: www.ihs.com/PricingPurchasing
About IHS IHS (NYSE: IHS) is the leading source of insight, analytics and expertise in critical areas that shape today's
business landscape. Businesses and governments in more than 150 countries around the globe rely on the
comprehensive content, expert independent analysis and flexible delivery methods of IHS to make high-
impact decisions and develop strategies with speed and confidence. IHS has been in business since 1959
and became a publicly traded company on the New York Stock Exchange in 2005. Headquartered in
Englewood, Colorado, USA, IHS is committed to sustainable, profitable growth and employs about 8,800
people in 32 countries around the world.
Research contacts Laura Hodges Director, Pricing & Purchasing
Principal Labor and Construction Analyst
+1.202.481.9237
19
Laura Hodges, Director of the Pricing & Purchasing Service, is
currently responsible for the management and operations of the
pricing research team. She also covers the analysis and forecasts
of global labor and healthcare costs.
Hodges has worked for IHS for more than 15 years. She received
her MA in Health and Labor Economics from Duke University with
the completion of her thesis titled “AFDC, Medicaid and their
Effects on the Labor Supply”. She also received her MBA from
Rutgers University in Beijing, China and her BA in economics from
the George Washington University.
Specialties:
Labor – construction and manufacturing
Research contacts Mark Ulmer Vice President, Pricing & Purchasing
20
Mark Ulmer leads the Pricing & Purchasing service at IHS. This group
specializes in monitoring global commodity, wage, output, and other
related indicators by sector. Their expertise spans across ferrous and
nonferrous metals, machinery and equipment, electronic components,
chemicals, paper, packaging materials, health care, and more.
Ulmer received his Bachelor of Science degree from the State University
of New York at Albany and has authored two articles, which have
appeared in the Monthly Labor Review. He is currently a member of the
Bureau of Labor Statistics Business Research Advisory (BRAC)
Committee.
Specialties:
Supply chain risk, operational risk, market
intelligence, cost benchmarking
Research contacts Katie Tamblin Director, Pricing & Purchasing
+44.203.159.3377
Katie Tamblin is the Director of Supply Chain Solutions, part of the IHS
Operational Excellence and Risk Management Team.
Prior to moving into the solution management team, Katie managed global
labor and European forecasts for the IHS Pricing & Purchasing team. Katie
was lead consultant on a project with the US DoD Inspector General's office
to analyze Bureau of Labor Statistics data and audit data abnormalities,
saving the US Government $520.6 million. In 2012, Katie was named one of
the top 100 people influencing EMS by VentureOutsource.com.
Katie received her Bachelor of Science in Mathematical Economics, Magna
Cum Laude, at Wake Forest University. She received her Master of Policy
degree in International Policy Development at Georgetown University in May
2004. In 2008, she launched the European Pricing & Purchasing forecast
team, and drove the release of the Global Pricing & Purchasing Service in
2010.
Specialties:
Cost & strategic Sourcing, price benchmarks &
indexes, market intelligence, supplier risk