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Sliding price formula: Definition and important aspects for buyers
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The sliding price formula in a nutshell:
A sliding price formula is a contractual agreement for automatic price adjustment based on defined cost factors such as raw material prices, wages or exchange rates. It enables the purchasing department to set fair and transparent prices for long-term contracts and minimize risk for both contracting parties.
Example: In a 3-year contract for aluminum products, the base price of EUR 2,500/tonne is adjusted quarterly, with the formula taking into account the LME aluminum quotation (60%), the energy price index (25%) and the labor cost index (15%).
Contents
Introduction to the sliding price formula
What is the sliding price formula?
The sliding price formula is a contractual instrument in purchasing that reflects price changes over the term of the contract. It makes it possible to adjust the agreed price for products or services to changes in cost factors such as raw material prices, wage costs or energy prices. The integration of specific indices into the price calculation ensures that both supplier and buyer participate fairly in market movements.
Core elements of the sliding price formula
Importance of the sliding price formula in purchasing
In the procurement process, the sliding price formula is used to distribute price risks between buyer and supplier in a balanced manner. It enables flexible pricing in long-term contracts and increases planning security for both parties. By adapting transparently to market conditions, companies can better control costs and increase their competitiveness.
Application of the sliding price formula in practice
The sliding price formula makes it possible to flexibly adjust contract prices to changing cost factors. By incorporating relevant indices, price changes are made transparent and comprehensible.
Sample calculation
Initial situation:
A company has agreed a base price (P₀) of € 1,000 per ton of steel with a supplier. The costs are made up of 70% material costs and 30% energy costs.
Indices used:
Material cost index (I_M): initial value = 120, current value = 150
Energy cost index (I_E): initial value = 100, current value = 110
Sliding price formula:
P = P₀ × [ (Proportion_Material × (I_M / I_M₀)) + (Proportion_Energy × (I_E / I_E₀)) ]
Calculation:
1st material proportion: 70 % × (150 / 120) = 0.7 × 1.25 = 0.875
2nd energy share: 30 % × (110 / 100) = 0.3 × 1.1 = 0.33
3. new price: P = € 1,000 × (0.875 + 0.33) = € 1,000 × 1.205 = € 1,205
Result:
The adjusted price per ton of steel is € 1,205. The price has increased by 20.5% due to higher material and energy costs.
Evaluation and strategic findings on the sliding price formula
✓ Critical success factors
→ Index selection: Use of official, independent indices for maximum transparency and acceptance
→ Weighting: Precise mapping of the actual cost structure through careful weighting of the components
→ Contract design: clear definition of adjustment intervals and calculation methodology
⚠ Challenges and limits
→ Complexity management: balancing accuracy and practical manageability of the formula
→ Market volatility: Extreme price fluctuations can lead to a need for negotiation despite the formula
→ System integration: effort for integration into existing ERP and procurement systems
Future trends and implications:
"Digitalization enables more dynamic and precise price adjustment mechanisms."
→ AI-supported price forecasts for proactive risk management
→ Automated price adjustments through smart contracts
→ Integration of ESG factors in price formulas
→ Real-time based price adjustments instead of rigid intervals
Conclusion on the sliding price formula
The sliding price formula is an indispensable tool for long-term business relationships in modern purchasing. It creates transparency, distributes price risks fairly between the contracting parties and enables flexible adaptation to market changes. Despite certain challenges during implementation, the advantages clearly outweigh the disadvantages: increased planning security, more stable supplier relationships and effective cost management. With increasing digitalization and AI-supported solutions, the sliding price formula can be used even more precisely and dynamically.
