Be Careful How You Ask for Price Forecasts

We noticed one buyer asking a supplier how much prices would increase at the beginning of the new year. Asking that question is worse than simply asking for a forecast without indicating any direction of up or down. It would have been better to ask how much could prices be reduced or not bringing the subject up at all. To the later question the supplier is likely to smile or laugh and say the prices will be increased by a significant amount.

Buyers sometimes ask salespeople for price forecast information at the request of their own accounting or marketing departments to help them prepare the company’s budget or the company’s prices of the product it sells. However, it would be better to get the information from business publications or industry forecasts rather than inquiring from your own suppliers.

Well-informed buyers can help forecast price changes by knowing the market, by looking at price trends, and by obtaining quotes from alternative suppliers. The buyer can anticipate a price increase if a long time supplier has not changed prices for a long time, especially if general prices have significantly increased during that time.

When your forecast indicates you can expect increases in the months ahead, you can take steps to limit the amount of the increases by increasing inventory, locking in prices with a long-term contract, or by looking for other suppliers who may offer a price reduction.

The buyer can also be prepared to control cost by working with engineers and marketing people to develop alternative specifications or different products that will reduce costs. Use value analysis to reduce cost by changing product and packaging design.

To sum up, never give the impression that you expect or will accept a price increase. There are many ways to reduce prices or at least keep them unchanged. Even in highly inflationary periods you can find other suppliers who will lower your cost to obtain new business. And existing suppliers will sometimes absorb some of their increased cost by reducing the amount of their profit or offer cost savings to keep your business.