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Deal Negotiation: How Chip Makers Can Regain Control of Their Margins
5/19/2014

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TaimoorZ
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Supply Network Guru
Re: A call to arms
TaimoorZ   5/23/2014 5:01:00 PM
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"One approach that I have toyed with is to have OEMs place a certain amount in escrow, sort of an LoC, that is then an assurance to the seller that if the volumes are not met the higher net price is indeed met, a reverse rebate"


@Azmat: That's an interesting initiative. Normally LoCs are written as simply agreements of payments without mentioning anything about the assurance of a volume. I do wonder how comfortable the OEMs are in accepting this as a clause.

Chanan Greenberg
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Re: too true
Chanan Greenberg   5/23/2014 4:53:49 PM
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I agree, it was  what I was trying to say (not as eloquently as you put it) when I referred to "established customers" - meaning companies who recognize the brand, have a standing on going businsess and relationship with the manufacturer 

TaimoorZ
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Supply Network Guru
Re: too true
TaimoorZ   5/23/2014 4:49:27 PM
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"While I agree that it is "easier" to hold the line with proprietary products I have seen ample examples of companies with "commodity" product lines improve their results through the use of rebates and step pricing with their more established customers."

@Chanan: I think the problem with commodity products has been the volitality in their price. With proprietary products and the association of a brand, the price stability becomes better. In the long run this eventually helps in keeping the revenues stable for commodity producers.

Hailey Lynne McKeefry
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Re: A call to arms
Hailey Lynne McKeefry   5/20/2014 7:35:45 PM
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@AzmatMalik, that's not suprising, I guess. The smaller organizations would likely be more nimble and also have less leverage with suppliers. It sounds like patience is a virtue when trying to create these new systems.

AzmatMalik
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Production Synthesizer
Re: A call to arms
AzmatMalik   5/20/2014 7:24:52 PM
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The mid-size were easier to work with; we had to wait a couple of annual cycles to get the 'template' set up.

Hailey Lynne McKeefry
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Re: A call to arms
Hailey Lynne McKeefry   5/20/2014 5:47:26 PM
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@Azmat, interesting ideas. How did your customers take to the reverse rebate? Did you find you had success with it with a certain type of customer?

Chanan Greenberg
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Re: A call to arms
Chanan Greenberg   5/20/2014 4:05:30 PM
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Got it.

AzmatMalik
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Production Synthesizer
Re: A call to arms
AzmatMalik   5/20/2014 3:39:42 PM
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My proposal is for a 'reverse' rebate. Pay the volume ordered [or cumulative volume ordered] and the excess ASP over the forecast volume price goes into a holding-escrow account.

Chanan Greenberg
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Blogger
Re: A call to arms
Chanan Greenberg   5/20/2014 3:03:40 PM
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I coult not agree more. Any experemintation with creative deal structures is better than just giving up. The ones proposed are interesting though I have not seen much of it happen. The advantage of rebates and step pricing is, we are not inventing the wheel, just expanding the use of an established mechanism.

Chanan Greenberg
User Rank
Blogger
Re: too true
Chanan Greenberg   5/20/2014 3:00:55 PM
NO RATINGS

While I agree that it is "easier" to hold the line with proprietary products I have seen ample examples of companies with "commodity" product lines improve their results through the use of rebates and step pricing with their more established customers. At the end of the day distributors, contract manufactuers and the OEMs cannot make products without chips. "Taking away the business" only makes them hostages of a smaller number of suppliers. So, as long as they get a discount and are simply asked to earn it, it should not drive too much lost business

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