17.05.2016

Winners of the Cheaper Oil Price

Winners of the Cheaper Oil Price

In the FT article dated January 15, 2016, Adam Palin asks “Is cheap oil bad news for investors?” He goes on to list the pros and cons for the airline business, car owners, shareholders in oil companies. I take this chance to relate it to negotiation within a Procurement context.

Oil is essential in every industry and even if you think you don’t use oil, as you are part of the global interconnected world, it means that somewhere in your direct or indirect supply chain, someone is going to be affected by this current oil price situation. 

Most of us in Procurement have cars or we have heard on the news about the drop in oil prices. Additionally, as consumers we are very happy to pocket the difference. That’s on a micro level. On a macro level your organization should also be pocketing the difference. Since the drop in oil prices, have you asked your supplier partners to pass on a portion of the savings they are making to your organization? Why not? For a lot of organizations, the normal state of affairs is for price adjustments to go up and in the direction of the supply partners as we are but price takers. So, when a situation arises where a % of the final cost of most of what we purchase is made up of a single commodity i.e. Oil, ALL Commodity Category Managers have the right to ask their supply partners for a reduction in price. Why? Obtaining a better price for this commodity is good for our organization and our investors, because now we are paying less for our goods and services. 

Not asking for this reduction can mean you are leaving money on the table and also that you may not be aware of how central to global operations this commodity really is. However, if you decide not to ask for a price reduction, you can still let the supply partners know that you are banking this for future negotiations. Caveat here is that you make sure to document this “gift” so that, if you do leave your organization or your post, your successor will know where you left things.
  • Supplier Mannagement
  • Supplier Negotiation
  • Saving money
  • Procurement oversight

We are a Global Procurement, Supply Chain and Business Consultancy specialising in Supplier Vetting and Management, Business Analytics, Business Interpretation and Translations, Contracts Management,…

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