The manufacturing costs of production parts change continuously, while purchase prices often remain unchanged for years or even increase. By regularly comparing purchasing data with raw material prices, exchange rates, freight costs, and duties, procurement teams can identify when the price they pay no longer reflects the underlying cost development. This creates a solid basis for the next price negotiation. AI can help analyze large amounts of data faster and turn the results into concrete recommendations. The negotiation itself remains the buyer’s responsibility.
Why do purchase prices often no longer reflect actual cost developments? Production parts are usually sourced from the same supplier over a longer period, often under contracts that run for several years. During that time, the supplier’s costs continue to change. Raw material prices, energy costs, labor costs, and exchange rates are constantly moving. The agreed purchase price, however, rarely adjusts automatically. When costs on the supplier side fall, this can therefore go unnoticed in procurement for a long time.
A single component can already involve a wide range of different cost drivers. Take a windshield wiper, for example. Rubber, steel, copper, plastics, and zinc all have their own markets and price developments. With more than 10,000 active parts in a vehicle, this quickly creates a complex mix of cost factors that is difficult to monitor continuously by hand.
There is also the workload procurement teams have to deal with. A strategic buyer may manage around 200 suppliers and several thousand materials. In day-to-day business, there is simply not enough time to regularly compare every single part with current market developments. Yet when volumes are high, even small price differences can quickly add up. A few cents per part can make a noticeable difference to margins when hundreds of thousands or even millions of units are involved.
How can you prepare a price negotiation using data? Good preparation starts by comparing your purchasing data with the factors that actually influence the price of a material. Alongside ERP data, this includes external market data such as raw material indices, energy prices, labor costs, freight costs, duties, and exchange rates. Bringing these sources together makes it possible to track how the purchase price has developed compared with the underlying costs. That difference provides a solid basis for the conversation with the supplier.
In practice, the analysis can be broken down into four steps:
Bring purchasing data together. Many industrial companies operate with multiple ERP systems across different regions or sites. To build a reliable analysis, the relevant purchasing data first needs to be brought together, including volumes, plants, payment terms, Incoterms, and tariff codes. Identify the relevant cost drivers. For each material, determine which factors have the biggest impact on its price. For example, steel might account for 50% of a component’s costs, with another 10% coming from energy. These cost shares can then be linked to the relevant indices and exchange rates. Identify price deviations. The actual purchase price is then compared with the development of the underlying costs. This shows which materials have seen their purchase price change more than their cost basis would suggest.Prioritize negotiation opportunities. Not every price deviation is automatically a good reason to negotiate. The key is to identify the materials and suppliers where a discussion is most worthwhile based on the size of the deviation, purchasing volume, and other relevant factors. Ivoflow uses ten analytical approaches to uncover different types of savings opportunities. The following examples show how some of them work in practice.
How can material price indices support price negotiations? Material price indices show how the prices of key raw materials develop overtime. Comparing these developments with your own purchase prices helps youassess whether a supplier’s price changes are actually supported by highercosts. If the purchase price increases while the underlying raw material indexfalls, this can provide a clear and fact-based starting point for the nextprice negotiation.
Here is a simplified example. A stainless steel component is sourced fromtwo suppliers. Steel accounts for 50% of the costs, while another 10% isattributed to energy. Since the start of sourcing, the steel index has remainedbelow its original baseline. The purchase price, however, has continued toincrease.
| Price Point | Purchase Price per Unit |
|-----------------------------------------------|-------------------------|
| 2024 | €10.29 |
| First price increase | €10.61 |
| Second price increase | €10.87 |
| Current | €11.24 |
| Raw-material-based price in the previous year | €10.19 |
If the raw material share is recalculated based on the development of the index, the price for the previous year comes to around €10.19. The actual price paid was therefore around 10% higher on average. With 53,000 units delivered, that results in a difference of around €40,000, based on the raw material share alone and for just one part.
The Market Intelligence tool tracks changes in raw material, energy, and labor costs linked to purchased products and categories. By continuously monitoring these cost drivers, it identifies potential savings opportunities and highlights where supplier prices may no longer reflect current market conditions.
How can exchange rates create new negotiation opportunities? For international suppliers, exchange rates can have a significant impact on actual costs. If a supplier is paid in euros but most of its costs arise in another currency, its cost base in euros changes with the exchange rate. If the local currency loses value against the euro, the supplier’s costs decrease in euro terms even if nothing changes in its production process. If the purchase price remains unchanged, this creates a difference worth looking at more closely in the next price negotiation.
The same principle applies to our example. One of the two stainless steel suppliers is based in China. Since sourcing began in 2022, the renminbi has lost value against the euro. Ivoflow calculates the resulting currency effect for each delivery and shows how much of the price development can be attributed to the exchange rate alone. The platform provides access to 29,000 currency pairs with daily exchange rates.
The currency analysis in Ivoflow tracks how a supplier's currency has developed against the company's purchasing currency since sourcing began. For every delivery, it calculates how much of the price is explained by exchange rate movements alone. This shows where suppliers benefit from currency effects that are not reflected in the purchase price.
Why is it worth looking at total landed costs? A landed cost comparison looks beyond the supplier’s price and considers the actual cost of getting the part to your own plant. This includes factors such as freight and duties. Taking these costs into account makes it possible to compare suppliers from different countries on a like-for-like basis. A supplier that looks more expensive at first glance can ultimately turn out to be the more cost-effective option, and vice versa.
In our example, the part comes from a supplier in Porto Alegre, Brazil, at a landed cost of €12.91. An alternative supplier in China would result in total costs of €11.07. The comparison therefore reveals a potential saving if sourcing could be shifted to the alternative location.
The same approach can be applied to local sourcing. In the example company, a delivery comes from Beijing while the receiving plant is located in southern China. Because Ivoflow knows both locations, it can calculate the potential of sourcing from a supplier closer to the plant. In this case, the potential saving is around €70,000.
Of course, the analysis does not make the decision on its own. The strategic procurement team still needs to assess whether suitable suppliers are available in the region, what quality and capacity they can offer, and whether switching suppliers makes sense. The analysis does, however, provide a concrete figure and shows where a closer look could be worthwhile.
Where else can procurement uncover savings opportunities? Raw material prices, exchange rates, and landed costs are only part of the picture. Other opportunities become visible when purchasing data is analyzed across different plants and materials. A common example is different prices for the same part. A supplier may deliver identical materials to several plants but use different material numbers and charge different prices.
These differences are not necessarily intentional. Individual plants may have negotiated at different times, or master data may never have been consolidated across locations. Ivoflow can identify and highlight such price differences based on the supplier material number.
How does AI support price negotiation strategy in procurement? AI can support the price negotiation process in two ways. First, it analyzes thousands of materials every day and identifies where relevant market factors have changed and which suppliers are affected. Generative AI can then put these results into context and turn them into concrete recommendations and arguments for the supplier conversation. The negotiation itself remains with the buyer.
In Ivoflow, generative AI summarizes the key figures for each relevant case and suggests possible next steps, such as adjusting the purchase price. It can also draft a message to the supplier or show how a currency effect can be explained clearly and factually.
Automated negotiations through the system are deliberately not part of the process. Buyers should enter the conversation with reliable figures and concrete arguments and decide for themselves whether and when a negotiation makes sense. For more examples of how AI can be used in procurement, see our article on AI use cases in procurement .
The AI Recommendation in Ivoflow summarizes the analysis results for a material and turns them into concrete next steps. It lists the key figures, suggests a course of action, such as renegotiating purchase prices, and drafts arguments for the supplier conversation on request. The buyer decides whether and when to negotiate.
Conclusion: Three things to take into your next price negotiation Production parts are often purchased at the same price for years, while the supplier’s underlying costs continue to change. Regularly comparing the two helps procurement teams identify price deviations earlier and build a solid basis for the next negotiation.
Three points are particularly important:
Review long-term contracts regularly: Even with multi-year contracts, it is worth checking whether the purchase price still reflects the actual cost development. Use market data as a basis for negotiation: Raw material indices, exchange rates, freight costs, and duties show how costs have changed and provide concrete figures for the conversation with the supplier. Use AI to prepare the negotiation: AI can continuously analyze large amounts of data, identify relevant deviations, and suggest suitable arguments or next steps. The decision of when and how to negotiate remains with the buyer.
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