Lifting the Veil Over Pricing Secrecy

I've always been fascinated by the pricing conundrum sellers and buyers of electronic components face when it comes to figuring out whether they are overpaying for parts, or selling them at a discounted price relative to competitors. That ongoing tussle for clarity between sellers and buyers has long dominated discussion in the electronics industry, but a new tool from Lytica Inc. promises to shed some light on the process.

The service, named Component Cost Estimator, was developed by Lytica and is being rolled out this week to the electronics components purchasing community in partnership with UBM Tech, the parent company of EBN, EE Times, and EDN, all of which are helping to bring awareness of the pricing challenges to the industry.

Under the agreement, UBM Tech will offer readers a low cost, pay-per-use version of Lytica's supply chain knowledge power tools. CCE is the first in a planned set of applications. It characterizes commercial electronic component market prices by drawing on Lytica's Freebenchmarking.com database, the largest independent database of current electronic component prices in the world. Ken Bradley, CEO of Lytica, said in an interview that CCE is an invaluable tool for anyone trying to assess product cost, cost targets, or pricing.

Component Cost Estimator provides market intelligence unavailable elsewhere. It creates exceptional value for customers and makes them more competitive. Component Cost Estimator is a powerful addition to our suite of media and marketing solutions that help electronics companies excel at designing their products and bringing them to market.

OK, that's the hype. What's the real story? Pricing is a dark hole in the electronics components market. In an industry gripped with often tempestuous conversations about supply chain and pricing visibility, few companies know for certain what rivals pay for similar parts and service. Factors such as volume, timing of purchase, delivery points, strength, and length of business association, and even the nature of the relationship between agents of buyers and sellers, are seen as determinants of pricing.

In articles for EBN, Bradley, who was previously chief procurement officer at Nortel Networks Inc., has tried to disprove the connection between pricing and volume. Many still believe there's a link, though.

I won't go into why there's so much secrecy in the purchase process, but buyers are often in the dark about whether they are getting a fair deal, and many sellers at component suppliers may not even be sure they are not pricing themselves out of a sales by bidding too high for purchasing contracts. The reverse is that some sellers end up under-pricing against competitors, hurting profit margins.

The secrecy is supposed to help OEMs, but even the biggest manufacturers with supposedly huge purchasing power leverage over suppliers cannot be sure they are getting the better pricing for parts. Without enough information, what can they benchmark the pricing they are receiving against?

That's where Components Cost Estimator comes in, according to Lytica's Bradley. The product gives OEM, distribution, and EMS companies, as well as suppliers, access to the latest information on the market price of parts they are selling or buying. Additional information about Component Cost Estimator is available in the Component Cost Estimator whitepaper.

Bradley goes on to say:

Our application is based on a high integrity process. It is a remarkably accurate estimation process; not a quotation. It is supplier independent so there is neither supplier bias nor any follow up to try and sell you components. The data in the reference library is used with permission from clients and is confidentially maintained. Extensive analysis and filtering is applied to the data to ensure matching and distribution integrity.

Initial access to Component Cost Estimator is free -- the first 25 components submitted are analyzed for free. (Go to www.componentcostestimator.com for a trial.) Take it for a spin and let me know what you think by posting a comment here.