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Old 06-22-2009, 05:23 PM
bschrag
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Question Utility Contract Commodity Pricing

We are preparing to bid to re-establish multi-term contracts for Electric Utility Transformers and Wire. Has anyone been able to succesfully bid and maintain multi-term contracts with pricing tied to some type of published price index? Specifically, the commodities we have problems with are Oil, Copper, Aluminum, Steel, Electrical Grade (Core) Steel, and PVC.
Our manufacturers tell us that since PPI is a trailing indicator, it doesn't keep up in markets that have become extremely volitile. Is anyone using other published prices, whether free or subscription-based, that have been accepted by manufacturers as an acceptable mechanism for commodity pricing?
E-Grade steel is the one we've had the most trouble with, since it is very industry-specific to electric utilities. Any feedback would be appreciated.
Bob
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Old 07-23-2009, 08:55 PM
hvillarreal
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Hi Bob,
Have you tried hedging these commodities? If the volume is there, talk to your suppliers about it. This has its upside and downside...

It works like this: You establish (fix) the commodity price, based on current Vs. future cost. I think the minimum time frame is one (1) year.

Upside - If the commodities prices go up in the marketplace, you have an established fixed cost for one (1) year. You don't have to pay anymore than what you agreed to.

Downside - If the commodities prices go down in the marketplace, you're stuck with the overprice and will have to live with it for one (1) year.

Look at the bright side, you won't have to worry that much about cost fluctuations.

Last but not least, when you get a chance, please take a look at the Sourcing & Supplier Development HELP FROM MEXICO link in the discussion forum, and let me know if I may be of help.

Regards,
Hugo
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Old 08-18-2009, 04:28 PM
000000104245
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Default Utility Contract Commodity Pricing

You may also want to look at industry-specific publications. They may offer some ideas on indecis that both you and the supplier can agree to. For instance, when I purchased corrugate we used the YELLOW SHEET for kraft paper corrugate and the WHITE PAPER for non-kraft corrugate. Also, you may want to consider PROPUCHASER.com. Propurchaser has a link from the ISM website. I think the fee is about $1000 a year. It allows you to track a number of commodity indecis both numerically and graphically. You can also get trend and historical data and industry news.

ISM had sponsored a 30-day trail a few years back and it was so useful that my company purchased a subsription. Times are tough, and you are an ISM member, so you may want to approach them about a free trial prior to a subscription. The worse they'll say is, No.
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