Importance of Price Discovery in Procurement

In a unique and dynamic market, the price discovery happens continuously while things are purchased and sold.

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Price discovery is a strategy for deciding the spot cost of an asset through collaborations among buyers and vendors. Price discovery is very different from the valuation.Where valuation includes the process of determining the present value of any commodity, price discovery is a continuous process where the buyers and sellers are involved to arrive at specific pricing in a given timeline.

The price discovery process also involves information related to the future and other related markets, other market mechanisms, etc. The London Metal Exchange (LME), the London Stock Exchange (LSE), etc are some electronic execution that helps in price discovery. 

In a unique and dynamic market, the price discovery happens continuously while things are purchased and sold. The price of the item will sometimes decrease or increase depending on the vulnerabilities or temporary changes in supply caused because of the purchasing behavior.

Proper price discovery in procurement relies upon the number, size, area, and vendor-buyer competitiveness. The amount, time, and accuracy of market information are also vital elements. 

Price discovery is helping to get a specific buyer and a seller to move from establishing general pricing to agreeing on a particular price for their exchange depending on the size of the transaction, location, cost, and other factors. 

Price discovery is hence, a dynamic and crucial process and needs to have a 360° approach to assess the position of buyer or seller in a particular market.

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