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Breaking It Down: How to End Component Pricing Secrecy

As Chief Procurement Officer at {complink 3858|Nortel Networks Ltd.} I never had enough information to be certain of our electronic component price competitiveness. Expensive consultants, EMS sourcing activities, and supplier assurances provided input, but never quite satisfied the need.

Since leaving Nortel in 2002, I have worked with many clients and have seen no real progress. Two years ago I decided to solve this problem, as Lytica Inc. has a unique vantage point working with OEMs, EMS providers, and suppliers in assessing electronic materials price competitiveness.

We designed FreeBenchmarking.com to help meet this critical market need. The service can assess pricing competitiveness, highlight areas for savings, and even measure price trends over time. We saw value to all the above mentioned groups from this secure, simple-to-use, and confidential service.

Our approach uses spending analysis on multi-component lists. Using the clients' annual volumes, we determine the spending on components at “best-in-class” and “average” reference prices and compare that to actual client spending where we have component matches. This allows us to measure, based on total and commodity spending, how competitive a client's pricing is. This is not a single-item pricing tool.

Our design anticipated some of the concerns of potential users. Amongst these were security, confidentiality, our independence from suppliers, data quality, and component match integrity. For security we followed the practices of Internet banking, and for confidentiality we made FreeBenchmarking.com a contracted service (even the free Silver report) where the “I agree” click electronically signs a confidentiality agreement and restricts our use of your data. As for independence, we have a policy and practice of accepting no compensation from a supplier related to the supply of goods or service to a client.

Data quality and match integrity are related. Lytica has developed proprietary match engines that create data groups by component, from which statistics can be derived. We have an exact match engine and a non-exact but functionally equivalent one. We also have three sources of data that we use to create three data sets, characterizing the data source as Platinum, Gold, or Silver.

Platinum data is of very high quality as it comes from our Platinum clients; we work with this data every day and have a high confidence level in its integrity. We see the quotes, the EMS price books, and the client files. We have less control over our Gold and Silver data quality; however, we continually test this data and reject any pricing that we feel is in any way suspect or compromised.

When a client submits data to FreeBenchmarking.com, we add its data to all three data sets, generate a report, and then remove its data and place it in quarantine until it is accepted or rejected by our component engineers and product specialists. Poor data quality from a client’s input affects only its report.

Our desire is to make FreeBenchmarking.com the go-to reference for electronic components price benchmarking. We have one goal: to help our clients achieve competitive advantage, and the feedback we continue to receive from the industry has been phenomenal. Our aim is to ensure our clients have access to the most current and valuable information possible.

6 comments on “Breaking It Down: How to End Component Pricing Secrecy

  1. Mydesign
    November 16, 2010

      Mr. Ken, what you have stated is cent percentage correct only. Even when we deales with the resellers or vendors, the market price of components are not at par with the quality or performance of the product. In our company like you stated we had certian bench marking process. Who ever meeting the bench mark standards can bid & if they are willing, they can contribute to the bench marking stsnderds also.

  2. DataCrunch
    November 16, 2010

    Hi Ken, I was wondering how/if your benchmarking takes into consideration piggyback pricing on components?  For example, if company XYZ has a list of components and one or a number of components needed are low to medium in volume numbers, but there are other companies that run much higher volumes of the same or compatible components.  Does your service take this into consideration in a way to provide the best possible pricing by taking advantage of other company’s larger production or ordering runs?   

    Also, to Toms’ point, do the benchmarking reports take component quality into consideration and perhaps offer a rating system along with best/average pricing? 

  3. Ken Bradley
    November 16, 2010

    Dave and Toms

    Thank you for your questions.

    We control quality in three ways. We know the source of the Platinum reference data so we know if it was through a reseller, distributor or direct.   Any one time, low ball price is excluded. Exact component matching ensures benchmarking components of the same quality. Other factors like payment terms can impact these component prices but with a large enough sample size the “Average” and “Best in Class” reference points are meaningful. The third way is testing data integrity before it is accepted into the reference data sets.

    A piggyback price would be used in the Silver and Gold Services although we would not know it is piggyback. Our Platinum implementation service would look at that possibility if it could aid a client. Because of our Platinum implementation service, some suppliers are willing to offer group pricing to our clients as they are part of the Lytica family. This may or may not yield a savings to the client.

    A company advantaged by piggybacking may have better pricing and it may even set a new “Best in Class” reference. Everyone needs to compete with “Best in Class” pricing and our comparisons tell how much of an advantage the best has. “Average” pricing comparisons shows how most others are doing. What is important is knowing how much better your own spending could be, and our reports benchmark this.   Further, Section 7 of our reports discusses pricing factors and their impact. More information is also available on our YouTube video at http://www.youtube.com/watch?v=wki2EE8u31s&feature=related.

    FREEBENCHMARKING.COM was launched on October 27th , 2010 and it is receiving a great reception in the marketplace.  I will take your input to my development team and see how we can work it into our product roadmap.  

    Ken Bradley

    President, Lytica Inc.

  4. elctrnx_lyf
    November 16, 2010

    This kind freebenchmarking will be useful for the OEM's making very high volumes of products. But also when it comes to the pricing offered to these bigger OEM's they will be offered best in class price. Does the benchmarking service will provide details reports reagarding the pricing offered to the other companies or pricing of similar components by the different suppliers?

  5. Ken Bradley
    November 16, 2010

    One of the surprises I have had since leaving a big OEM and working with multiple clients through Lytica as well as serving on Boards was to find out that big OEMs don’t always get the best pricing. Our reports, in section 7, address some of the factors that impact pricing. I was surprised to discover that volume isn’t always number one.

    That being said and to address your question more directly, this is a benchmarking service and we do not reveal client or supplier prices. We provide competitiveness assessments and with the Gold reports information that will enable a client to act on cost improvement.

    The reports assess a client’s input against “Average” and “Best in Class” pricing. Our reference datasets contain information from small, medium and large size corporations. We have found opportunity in all clients’ submissions regardless of size. No one is best at everything. Companies, regardless of size, generally do well where they have focused. Cutbacks at many companies, particularly the large ones, have left some commodities unattended giving rise to higher pricing and opportunity.

    Regarding the pricing of similar components by the different suppliers, our reports provide details of exact and total matching. Total matching adds the pricing statistics from functionally equivalent components alternate Off-AVL suppliers to the competitiveness assessment. Also, our Platinum service assists clients in finding and implementing component alternatives from suppliers offering acceptable quality, price and service.

  6. Mydesign
    November 18, 2010

    Hi Deve,
       No, we are NOT considering the quality of the products directly in initial stage of bench marking. The process is like that, we are short listing the products which primarily comply with the bench marking standards and some times may ‘n’ number of products get short listed. Once it got short listed, the next step for filtration is based on the quality. Sure we have a policy of rating also, based on quality vs pricing mechanism. I think almost all companies have similar policies before going for final purchases.

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