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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.

In a statement, David Blaza, vice president, Electronics, at UBM Tech said:

    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.

13 comments on “Lifting the Veil Over Pricing Secrecy

  1. dalexander
    January 29, 2013

    @Boalji, if a manufacturer has established authorized distributor channels and for any given part there might be three or more distibutors, then most procurement people are going to send our request for quotations to at least three potential suppliers. Depending on the price and availability, the buyer will decide from whom to purchase. Now, if manufacturers and distributors also have access to this new resource, will it not drive the entire price network to parity such that the RFQ will still be issued, but the buying decisions will be based more upon relationships and availability? Can you give an example from start to finsih just how this pay-per-event process works. What real advantage will this give the buyer in a typical manufacturing company?

  2. bolaji ojo
    January 29, 2013

    I will come up with an example later but in the meantime I wanted to respond to the question you raised about the “real advantage” this product would give a “buyer” in a manufacturing company. The question made me realize how much we value a “buyer” for doing something that shouldn't necessarily have that much value to it. The buyer isn't designing or making the product. Why is a buyer's time being used to figure out pricing advantages? This is a disruptive product. No doubt about it and one of the disruptions that's going to happen if pricing became more visible is in the “buyers” workforce!

  3. engineer369
    January 29, 2013

    I keep an eye on these blogs and read them frequently. I have been buying electronic components for over 20 years now. I don't think we should forget that http://www.oemsecrets.com have been offering a price comparison to small manufacturers like me FREE of charge for quote a while now. So when the subject of the blog is “lifting the veil over pricing secrecy” I find it quite amusing actually. Especially when the website most us engineers use is called oem secrets! Maybe it is a well kept secret after all… Any site that helps manufactures gain more info is welcomed but I would like to know what other manufactures think about this.

  4. Daniel
    January 29, 2013

    Bolaji, I had gone through the tool, but it seems that only limited components from some specific vendors are listed with the tools. There is no doubt that it will help the manufacturers/assembling unit for estimating the approximate cost. On the go, hope it will update with more component from different vendors too.

  5. SP
    January 30, 2013

    wow if therez a tool for component cost estimator it would be so handy for the designers as wells as buyers. would explore Lytica.

  6. bolaji ojo
    January 30, 2013

    The list of components is expanding but I think it's possible to email the company and request additional information if items you are looking for are not on the site.

  7. bolaji ojo
    January 30, 2013

    One possible difference is that CCE does not directly sell components.

  8. Ken Bradley
    January 30, 2013

     

    Bolaji, we have had a great response from designers attending Design Con 2013 and EMS exhibitors to our Component Cost Estimator product. Designers see the value in independent component cost benchmarking and alternate source identification as enabled by this low cost pay per use application. EMS companies like it as they can quickly identify components where their costs are out of line to achieve savings for themselves and their customers.

    The comments at the show echo the feedback we get from our CCE subscription customers. These are some of the largest, most prestigious EMS, OEM and distribution companies in the world.

    Examples of how these companies are using the application are the same as the insights of the Design Con participants.

    •·         Understand market price targets before awarding design sockets to suppliers

    •·         Setting shared cost targets between design and operations

    •·         Testing new quotations from suppliers for acceptability

    •·         Reducing the amount of quoting activity by validating that market prices haven't changed since last quote was received

    •·         Assessing the competitive position (materials cost) of a product  against what competitors might be able to achieve

    •·         Teardown price assessments (Materials) of a competitor's product

    •·         Providing assurance to Boards and shareholders that a company's materials costs are competitive

    I am seeing increasing interest from corporate Boards and investors in how companies know that they are competitive. Lytica knowledge power tools are being used to provide evidence that these stakeholders appreciate. Imagine two possible answers that a CEO could give; one using CCE and one not. Which one stands up?

    •1.       We take our data from distribution websites to gauge our competitiveness, or

    •2.       We use independent component price benchmarking base on the world's largest independent database of current electronic component pricing.

    Which one wins?

  9. MikeRR
    January 30, 2013

    Obscurity of price at a component level is driven by profit motive alone. Whether you are talking about Manufacturer to OEM or Distributor to OEM/CEM. I've set strategic pricing for large accounts ( sorry Nortel – you didn't get the best price ), and we all have experienced the regional price inequalities found around the world. All pricing is not created equally.

    Clearly a tool that delivered pricing transparency would make sellers very uncomfortable in justifying pricing differentials. But as we know, especially in this market, there are some vendors which are aggressively pricing to win business and there are others that seem to collectively hold or push prices up.

    My concern is three fold, can a tool like this actually effect change when end user buyer information is removed? The fact that a website says someone bought 1000 units at a lower price raises many questions? Who bought, What were the conditions / business reasons for the discount, Where were they sold?

    My second concern or observation how reliable the data can be? Negotiating pricing is one part of the competitive cards that OEMs hold close to their chest. Why would someone show their hand? – for the greater good?

    My third concern is how much drag will this put on the supply chain as all parties try to put up roadblocks to rebuff the demands for lower pricing. The reason that a tier pricing structure is in place is because it makes more money.

    As a representative for a chip manufacturer, a buyer for OEM supply chain, or in my current roll at a CEM, pricing is based on industry knowledge, organizational credibility on making your numbers and finally asking the person that has the real power to get you the price you need to give it to you.

    It's great to have more industry pricing intelligence at hand, especially at the design stage, but in the end ” buyer be aware ” .

     

     

     

     

  10. bolaji ojo
    January 30, 2013

    Outstanding analysis. I particularly like the final point about “buyer beware.” If, as you noted, companies use pricing as a competitive tool, it's because it creates an advantage for sellers and buyers but as some folks I've spoken with in the past have commented, you never really know whether you got the advantage or the victim.

    And, by the way, I believe Ken Bradley knew after he left Nortel that his company wasn't getting the best pricing, hence the decision to set up freebenchmarking.com and Lytica 🙂

  11. FLYINGSCOT
    January 30, 2013

    Sounds like we are creating a market system akin to Nasdaq for stocks.  It might lead to some good things in future if it is made transparent.  I will take a look at that company's website to find out more.

  12. PG
    February 1, 2013

     Sites like OEMSecrets do provide a snapshot in time of what franchise distribution has in stock, but I am surprised to hear you would use such a site for any real cost comparisons. OEMSecrets scrapes franchise distribution websites and re-posts the data, this is why it's free.

     If you want to know what a distributors current inventory position is, then these types of sites are great for letting you know that. If you're looking to get the best price, you need call your favorite distributor and use solid information to help leverage your position. CCE does just that. It helps me understand where pricing should fall (especially if I have no historical data to rely on! ) and it also provides me with a possible second source option which can also save time and money!

    Saving money is high on everyone's list for 2013 and CCE is proving to be the tool needed to help buyers and supply chain managers reach their cost reduction goals faster than ever before!

  13. Daniel
    February 5, 2013

    Bolaji, thanks for the clarification. One more thing is it possible to get the quote for outside US, how they may calculate the component price across different countries.

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