Thanks for your interest in this blog. Many of you have raised questions that I would like to address with this reply and in my next blog. Here are three of my thoughts:
1.The scatter gram shows components with low volume prices that are lower than high volume prices. The high volume prices appear to me to be in the middle range of pricing. The volume vs price myth doesn't hold.
2.There is a relationship between cost and volume. This disappears when translated into pricing because most pricing is not cost plus. In most cases, once negotiations start pricing goes down.
3.Suppliers operate with margin goals, tiered pricing structures, product subsidies and other distortions. All this kills or masks any volume - price relationship.
Another thought, if there is a strong price-volume relationship, why would anyone negotiate? Also, why isn't there be greater price transparency, why is it so secretive? Maybe it's because some negotiate great pricing and others don't.
Ken, but normally we experienced that pricing are inversely proportional to the quantity. I mean for lesser order, pricing may be little bit higher per piece and for bulk order; the individual pricings are kept in lower side. Again, the pricing is based on demand and availability.
Until one look at the data closely, it is difficult to say with certainity what is happening. I do not think that it is crystal clear from the above graph about the assertion that there is no relationship.
Rather than saying that there is no relation between volume and price, i would assert that the price spead decreases with the volume. The high price spread at low volume depends on many factors, as also stated in the article but with high volume purchase the buyers can put more chips on the table and negotiate harder.
There are always prejudices, with volume pricing there can be the prejudice towards an agency, but these days, agencies get short shrift, - unless they provide other significant value adding items there is no respect as such, and really no reason for it, and with all companies doing business over the internet, almost nobody holding significant stock any more, why should a manufacturer do anything but sell according to their product manufacturing cost, the cost of packing, and the freight.
It is difficult to let go of the perceptions we have on pricing--that it is a fixed price determined by cost to manufacture plus markup. Like Ken, I don't have the math background to go much deeper than that, but the factors he mentions, such the supplier's desire to do business with you, is very much a part of the equation. The data seems to illustrate the point more drastically than I would normally imagine, but for folks that require data to illustrate a point, the chart above is pretty compelling.
If the price is an ART FORM where no formula fits then it is difficult to quantify the gain or loss for a buyer enetring into the negotiations with a supplier. Because each party will be applying its own criterion onto what price is the best.
Ultimately as long as you recover that price from the products you make with a healthy profit margin , that price should be good.
So in my opinion the buyer should decide the best purchasing price first and lead his/her negotiations with the supplier in that direction.
EBN Dialogue enables and encourages you to participate in live chats with notable leaders and luminaries. Not only editors and journalists, but the entire EBN community is able to comment and ask questions. Listed below are upcoming and archived chats.
Thailand Stages a Comeback Join EBN contributor Jennifer Baljko on Thursday August 23, 2012, at 11:00 a.m. EST for a live chat on how electronic manufacturers in Thailand have shored up their supply chain to reduce the impact of future natural disasters.
Microsoft Surface: Potential Winners & Losers What are the implications for the electronics industry supply chain of Microsoft Corp.'s decision to launch its own tablet PC? Join industry veteran and EE Times' systems and OEM expert Rick Merritt on Tuesday, July 3, at 12:00 pm EDT for a Live Chat on this subject.
Join EBN contributor Jennifer Baljko on Thursday August 23, 2012, at 11:00 a.m. EST for a live chat on how electronic manufacturers in Thailand have shored up their supply chain to reduce the impact of future natural disasters.
Peter Drucker famously said "Trying to predict the future is like trying to drive down a country road at night with no lights while looking out the back window." Yet in the razor's-edge world of electronics—with a lean supply chain and just-in-time demands—the need to know the future is vital.
You've heard the saying "the No. 1 supply chain risk is your people." That hasn't always been the case. But today's complex global supply chain requires a new type of multitalented employee. It's one who understands, finance, marketing, economics, is savvy with technology, graceful with relationships and can think analytically.
Where are these people? Are universities properly preparing the next generation supply chain professionals? How do train your existing workforce for these new, demanding positions?
Brian Fuller, editor-in-chief of EBN, will lead a 60-minute Avnet Velocity panel discussion that will ask and answer these and other questions swirling around today's supply-chain talent challenges.