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UNDERSTANDING INDEX LINKING

Index linking or commodity price indexing should be used in contracts where a large proportion of the pricing is driven by a particular component. If index linking is going to be looked at within a contract, the cost breakdown of the goods or services needs to be understood. Note that this mechanism can also be used to mitigate risk in currency fluctuation.

Some examples of where this could be used are: purchasing raw materials such as steel, purchasing manufactured goods such as plastic pots or transport services where the obvious index to be used could be fuel. As examples, metal indexes could be from London Metal Exchange, plastic indexes from ICIS and fuel indexes from the Road Haulage Association.

Index linking does create a management overhead and so care needs to be taken depending on the contract, it could lead to monthly/quarterly/six-monthly or even annual review. Typically the contract price is adjusted when the average index over the preceding period, varies by more than +/-10%.

During the review there are two ways you can look at the price adjustment. If for example you are looking at the purchase of plastics pots and you know the weight of raw materials that goes into each pot, then the movement in the price will directly correlate to the increase or decrease in the material cost. If you do not know the specific quantities of the index-linked item such as with fuel in transport, then the adjustment must be linked back to the price paid at the beginning of the contract as it will be based on percentage variations.

DISCOVER OUR CAPABILITIES

Market Dojo offers a wide range of capabilities that help procurement professionals get the most out of their sourcing activities with easy to use and intuitive solutions. You can get started on your packaging tender straight away with our ‘Pay as you Go’ plans that start at as little as £500. Designed by procurement specialists, our solutions aim to help you centralise your information and negotiate the best value for your goods and services. Whether you looking to run a simple eSourcing event or combine advanced weighted proposals with integrated procurement solutions we can help with our range of offerings and support.

Warren Services save Administrative overhead using Quick Quotes

With Quick Quotes, it's difficult to find reasons not to use it. My team think its great. We were worried everyone would say you send too much stuff but everyone's feedback has been “we love it”.

William Bridgman Managing Director at Warren Services

Arqiva use Market Dojo as a key tool within their purchasing strategy

I managed to generate a 48% saving in 2 hours so was very happy with the result! I would definitely recommend these guys. I honestly don't have a bad word to say about them. Excellent service, excellent software and a fantastic experience.

Tara Hunt Category Manager, Arqiva
discover how our customers specsavers are using market dojo for their reverse auction and esourcing events

Market Dojo helps bring simplicity to a complex procurement environment

The company and people are intuitive, young and enthusiastic in nature. Specsavers will be looking to use Market Dojo as a ‘business as usual’ tool and regard it as an integral part of their negotiation toolkit.

Jasper Raby Procurement Consultant, Specsavers

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