Slide 12.

Lysons & Farrington, Purchasing and Supply Chain Management, 7th edition, Pearson Education Limited 2005

Slide 12.2

Buying at the Right Price

Perfect Competition Conditions

Item must be homogeneous

Item must be easily transportable

Must be many buyers & sellers

No Preferential treatment or discrimination against any buyer or seller

Easy communication must exist between buyers & sellers

Imperfect Competition Types and Conditions

Table 12.1 Forms of imperfect competition Type Monopoly Oligopoly Monopolistic competition No. of suppliers One Few Many Entry of suppliers into the market No entry Limited entry Competition between suppliers

Lysons & Farrington, Purchasing and Supply Chain Management, 7th edition, Pearson Education Limited 2005

Slide 12.3

Buying at the Right Price

The 4 Main UK Competition Bodies

1. Office of Fair Trading

2. The Competition Commission

3. The Competition Appeal Tribunal

4. The European Commission

Ways in which a Dominant Undertaking May Abuse its Position

Impose unfair purchase or selling prices Limited production, markets or technical development Applying different trading conditions to equivalent transactions Attaching unrelated supplementary conditions to a contract
Lysons & Farrington, Purchasing and Supply Chain Management, 7th edition, Pearson Education Limited 2005

Slide 12.4

Buying at the Right Price General

Supplier Considerations in Pricing Agreements

Position in the market Nature of demand What the market or purchaser will pay Prices charged by competitors Suppliers need for the business Long-term value of the purchaser to the supplier Standard or special product Stage of product in its life cycle cost mark-up Cost based

Pricing Models

marginal pricing rate of return Market based price volume market share skimming current revenue promotional market segment competition pricing

Lysons & Farrington, Purchasing and Supply Chain Management, 7th edition, Pearson Education Limited 2005

Slide 12.5

Buying at the Right Price Risk attached to purchase Purchasers position in the market

Purchasing Considerations in Pricing Agreements

Nature of the purchase, e.g., strategies

Is it a re buy, etc? Number of suppliers Alternative products Prices paid by competitors Is the learning curve applicable? Period to which price will apply What does price analysis show? Quantity What is a fair price?
Lysons & Farrington, Purchasing and Supply Chain Management, 7th edition, Pearson Education Limited 2005

Slide 12.6

Buying at the Right Price

Variations in Firm and Cost Price Agreements

Firm Agreements
Fixed price Firm fixed price with economic price adjustments Fixed price incentive Fixed price with prospective price predetermination Firm fixed price, level of effort

Cost Type Agreements

Target cost with maximum price Target cost without maximum price

Lysons & Farrington, Purchasing and Supply Chain Management, 7th edition, Pearson Education Limited 2005

Slide 12.7

Buying at the Right Price

Price Analysis
Seven Bases for Comparing Prices

With competing offers

With established catalogue prices

With established market prices

With prices set by law or regulations

With producer price & other indexes

With in-house estimates

With values determined by volume & value analysis

Lysons & Farrington, Purchasing and Supply Chain Management, 7th edition, Pearson Education Limited 2005

Slide 12.8

Buying at the Right Price

BEAMA Formula

P1 = P0 (0.05 + 0.475 ( ) + 0.475 ( ) )

M1 M0

L1 L0

Discuss the Elements

Lysons & Farrington, Purchasing and Supply Chain Management, 7th edition, Pearson Education Limited 2005