The Role of Price Analysis
The function of the purchasing agent is to procure needed materials, in sufficient quantities, in a timely manner, at “fair and reasonable” prices. The term “fair and reasonable” is generally interpreted to mean that the price is acceptable to both the buyer and the seller. When price competition exists in its most ideal form, you can assume that the lowest bid price is “fair and reasonable”. When price competition does not effectively exist, the determination of a “fair and reasonable” price is arrived at through negotiation.
Many books have been written about effective price negotiation. A common theme throughout is that the level of success achieved in negotiation is dependent upon the amount of knowledge that each party brings to the table. Knowledge is more important to success than negotiating skill. Performing price analysis builds knowledge and creates persuasive and realistic negotiation positions.