If you are about to renew a contract or even better in your way for running a strategic sourcing methodology, you’ll have to assess the strenghtes and weaknesses of your current contract not only from a specification perspective but as well from a pricing perspective. Below are my top 10 pricing-related questions to be answered as they should be of great support help when designing an optimised best-in-class pricing-scheme for your contract renewal:
- What is the pricing basis (Describe the whole principle: per unit, bundled, volum-linked, fixed, with allocations; SLA-linked; including penalties in case of failure or late delivery)?
- What other pricing alternatives do you know (from competitors) and that could be of interest to apply? under which conditions?
- For how many years was the current pricing valid?
- What has been the price history and what is the trend?
- How is the current price optimised with volume?
- What are price/cost drivers? Are financial instruments of any influence?
- Is the price an absolute or relative price? If a relative price, what is the formula (example: gasoline price is function of crude oil price, cable price is a function of copper price)
- Does the price/formula vary by locations? How? Why?
- What transportation cost is included in the price? ( None: F.O.B. price; C.I.F. (cost including freight, does not include any tariffs/duties or inland freight to the final destination); Total landed: delivered directly to the buyer’s location)
- Are there any other assumptions/constraints implicit in the price?