Unpacking Pricing Models

Perhaps no other topic creates as much apprehension between a buyer and a supplier as negotiating a fair price for a product or service. The conventional procurement process puts buyers and sellers on opposite sides of the table until the parties "get to yes." While a buying company and supplier often "get to yes" and establish a business agreement, they will frequently face renegotiations. Buyers especially become frustrated, frequently blaming suppliers for not honoring the original...
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Perhaps no other topic creates as much apprehension between a buyer and a supplier as negotiating a fair price for a product or service. The conventional procurement process puts buyers and sellers on opposite sides of the table until the parties "get to yes." While a buying company and supplier often "get to yes" and establish a business agreement, they will frequently face renegotiations. Buyers especially become frustrated, frequently blaming suppliers for not honoring the original price. Rather than being frustrated, buyers should look in the mirror and ask, "Did I get what I paid for? And if not - why?" The primary reason for this is that the process for establishing pricing between buyers and suppliers is broken. How so? At the heart of the misalignment is the fact that conventional sourcing business models typically result in the buying company and its supplier establishing a "price" that reflects the circumstances at a point in time when the business agreement is established. This "price" is not responsive to changes in the scope of work, in the market, or in corporate strategy. In addition, many companies do not take the time to use more advanced sourcing business models and pricing mechanisms designed to keep a buyer and supplier relationship in equilibrium as "business happens."Our premise is that if a company is not happy with its deal, or its business relationship, it should look closely at the sourcing business model and pricing mechanisms rather than rush out to bid and switch suppliers. This white paper helps companies see that "you get what you pay for" is in direct correlation to how well it matches the right tools to the right business needs.