How procurement leader can drive cost reduction with NLPP – Hot Spot Analysis

NLPP Hot-Spot Analysis

Driving value through Nonlinear Performance Pricing (NLPP) Hot-Spot Analysis.

Every product has a price, but how can you know if your price is justified?

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When purchasing catalog goods, several factors are unfavorable against purchasing: The large number of different item numbers, which can quickly run into the thousands per product group, plays into the cards of the supplier. After all, how is the buyer supposed to determine whether a price is fair or not for each item? The classic comparison of offers from three suppliers is not very suitable for everyday use due to the enormous amount of work involved.

For example, a buyer can find out that a component is cheapest from supplier B – but not whether this specific component is too expensive or perhaps comparatively cheap compared to another component with a different specification. When comparing offers, there is no possibility of evaluating the price-performance ratio.

By using modern mathematical analysis tools such as Non-Linear Performance Pricing (NLPP), buyers can find out which of their thousands of components have the potential for cost reduction or are overpriced.

The nonlinear performance pricing (NLPP) method which is offered as a software solution calculates a target price formula for each product group, which represents the influence of product properties (e.g. length, weight, material, etc.) on the price. If the price is required for a new part number, the parameters of the new part are simply inserted into the target price formula – and the buyer receives the target price immediately from the software. Experience shows that the NLPP target prices are accepted by the supplier, as they quite objectively reflect the prices that are justified to the product properties.

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