Did you know that there are hidden risks in the prices of products and services in long-term contracts? Let’s look at the five main risk moments:
1. Cost Inefficiency
👉 The first main risk is cost inefficiency. Without constant or regular price comparison, your organization may be overpaying for goods and services. Prices in the market can fluctuate due to economic changes, industry developments, and competition. If you’re locked into a long-term agreement with fixed prices, you may miss out on cost-saving opportunities. Regular benchmarking helps identify cost inefficiencies and renegotiate agreements when needed.
2. Market Changes
👉 The second main risk is market changes. Markets are dynamic, and prices for products and services can change significantly over time. Long-term agreements might have been negotiated at a favorable rate initially, but market conditions can shift. If you don’t keep tabs on these changes, you may pay more than the current market rate. Benchmarking ensures that you adapt to market shifts and maintain a competitive edge.
3. Supplier Performance
👉 The third main risk is supplier performance. The quality and performance of suppliers can change over time. While you may have entered into a long-term agreement with a supplier who met your requirements at the start, their performance might decline or improve. With periodic benchmarking, you will have a clear picture of how well your suppliers are meeting your needs. This lack of insight can lead to suboptimal performance and possible missed opportunities to improve service or reduce costs.
4. Technology and Innovation
👉 The fourth main risk is technology and innovation. Technological advancements and innovation can significantly impact products and services. If your long-term agreements are based on outdated technologies or practices, you could miss the benefits of newer, more efficient solutions. Regular benchmarking helps you identify opportunities to leverage technological advancements and innovation to your advantage, improving your operations and competitiveness.
5. Neglected Contract Terms
👉 The fifth and last main risk is neglected contract terms. Long-term agreements often come with multiple contract terms, such as service levels, quality standards, and performance guarantees. Without consistent benchmarking, these terms might be overlooked or forgotten. This can lead to compliance issues, as both you and your supplier may not be meeting the agreed-upon terms. Regular benchmarking helps you stay on top of contract compliance and ensures that both parties fulfill their obligations.
Recap
In summary, failing to regularly price benchmark long-term agreement products and services can result in cost inefficiency, leaving your organization vulnerable to market changes, supplier performance fluctuations, missed opportunities for technology and innovation adoption, and neglected contract terms. To mitigate these issues, it’s crucial to implement a robust benchmarking process that continuously assesses the cost, quality, and performance of your long-term agreements. This proactive approach ensures that your organization remains competitive, adapts to market dynamics, and maximizes the value derived from your supplier relationships.
Youtube: https://www.youtube.com/watch?v=fEcDvSu0bI0&ab_channel=BzCall
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Written by Gert
Last time edited: 07.11.2023
