What would count towards cost reduction and cost avoidance

Reference no: EM132750875

One of your MRO suppliers has approached you with solid evidence that its costs have risen, and market prices for MRO have also risen. You investigate this and find out that it is true. For safety supplies, the costs have risen on average 5%. The supplier wants a 5% price increase.

Problem a. Assume that your company does not report any cost-avoidance savings. You negotiate with your supplier for only a 3% increase this year. Next year, the supplier will reduce the price back to the price you are paying this year. What would count towards cost reduction and cost avoidance this year and next year? Is there anything wrong with delaying the price reduction until next year?

Reference no: EM132750875

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