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221 comments on “Price Competitiveness & Leverage – Separating Fact From Fiction”
Mydesign
March 8, 2011
Ken, many of the companies has a fair pricing policy by considering different factors like basic cost of the raw materials, employee’s wage, ROI for investment, marketing and a marginal profit. We know companies are struggling too much to find out a place to sell their products due to much competition. For reducing the price, the seller or company can compensate only up to certain extent in their margins and the next option for them is to compromise in terms of quality, up to an extent.
So it’s the hard time for companies, to come up with some cost controlling mechanism rather than compromising the quality. By considering the above scenario, can you little bit elaborate about your formula, Price change = target pricing x benchmarking x critical first steps > supplier resistance, and (C=a.b.c>R).
Ken, To what extent does China influence component pricing and in which components do you see this. I am especially interested in how much high-tech companies now secure from China and how they determine who would be on their approved vendor list. Do they approach procurement in China with the same strategy as they do in the West or are there key differences?
My question is regarding “Price competitiveness Vs Branding a product”. If I reduce my product cost owing to immense competition, am I at the risk of loosing the brand Image, because generaly costlier goods are seen as high quality goods.
Ken, in current Monopolistic competitions how branding can adds values to products? If branding are happening, how they are going to realize the substantial competitive advantages and gains from such markets. Otherwise, if the pricing is more sensitive, up to what extends the brand value can crack the Pricing Code. If companies are developing a brand-centric philosophy, what are the financial and perceptive values?
Dear Kean, several discussions have been done at EBN on in the past weeks just to underline and take in consideration how smartphones, tablets and mobile communications (as results also of vendors' strategy from Apple and Nokia-Microsoft) could help and improve the whole electronics supply chain; do you think recent “pervasive” evolutions coming from mobile could impact pricing and procurement approach on the market by electronic suppliers?
Dear Ken, we wll appreciate a lot your opinions regarding another topic to discuss: in the electronic world we are assisting on features' moving from hw to sw. Several implementations especially due to “Internet of Things” advent, provided us with examples on sensors controlling and so on. Do you think “Internet of things” are impacting also on pricing in buying fundamental components and also on pricing in selling final end users products?
Ken:I will appreciate your input on the impact of rules (general tax laws, regulations and permiting) that stimulate growth as one of the key factors for competitiveness. I will also like to know your view on the changing rules in China that favors the local economy and your forecast of this on future productivity within China.
Knowing that competitive component pricing impacts productivity, which in turn impacts use of available resources (human capital, financial and natural resources), what has been the overall productivity outcome for companies like yours who have adopted your pricing tool?
My question is regarding “Price competitiveness Vs Branding a product”. If I reduce my product cost owing to immense competition, am I at the risk of loosing the brand Image, because generaly costlier goods are seen as high quality goods.
@anandvy: Good question! It's in the line of what I asked Ken. Even though it is as you say most of the time, that people think costly goods are equivalent to high quality I doubt that is a case that can be applied to all sort of goods or all the companies.
@Terry: it may be the excitement of the new chat that brought us early today. We started discussing about cost Vs quality. This promises to be a quality discussion.
Hi from Cambridge. I am wondering if the disparity between Western pricing and the so-called China price is as big as people have claimed it is. Any thoughts?
I think live chats were missing on EBN..it's great to have one here..also radio shows and video talk shows might be something of great use to the members..
I am going to officially start this off by welcoming everyone, and introducing myself–Community Editor of EBN and Bolaji Ojo, our Editor In Chief. Joining us today is Ken Bradley, CEO of Lytica, which has developed the freebenchmarking.com tool to help buyers with their pricing issues. Welcome Ken!
Hello Ken, Everyone- With the 1st tier M&A's of 2nd & 3rd tier component distributors for major lines resulting in higher ASP's, is there now room in the supply chain for a new class of competing low-cost OCM component distributors, much like the GENERIC PHARMACEUTICAL market with 30-80% PPV for the same functionality?
FREEBENCHMARKING.COM works by creating price distributions for every supplier’s component and applying these distribution statistics to a client’s submitted bill of materials. Through this we are able to accurately assess a client’s competitiveness, recommend target prices at the component level that are appropriate for the client’s circumstance, find and report alternatives for single sourced components and more.
Benchmarking to understand your current competitiveness provides focus that drives cost improvement
Sharing information with suppliers enhances the relationship and reduces costs
Supply chains need to be designed for cost and performance
Manufacturers need to see your company (OEMs) as the customer, not the distributor or contract manufacturer. Their marketing and R&D dollars need to go to you.
Good to have you here. Most of the times the component prices offered to the large OEM's is always competetive. Do you think this tool will still help those OEM's
My question is regarding “Price competitiveness Vs Branding a product”. If I reduce my product cost owing to immense competition, am I at the risk of loosing the brand Image, because generaly costlier goods are seen as high quality goods.
Hawk, China has a strong influence on costs in most commodities. I cannot think of one where they don’t. Whether this influence in cost translates into a strong influence on price is another matter. Chinese companies selling in China generally offer low pricing. Western companies manufacturing in China but selling globally may or may not reflect lower costs in their pricing. (As with Chinese companies selling globally although Chinese companies try to capture market share with low price.) My belief is that most better companies approach procurement with the same standards of quality regardless of source. It is the quality of the product that they are selling that is key to their brand image. Many Asian suppliers have historically needed help in achieving the quality standards, although today there are many Asian companies who lead in the quality and technology field. I think the biggest difference between Chinese or Asian companies and western ones is the importance of relationship over contract.
Toms, I am not sure what you mean by monopolistic competition but if you mean differentiation as is achieved by many ASSP companies, then their products are value priced and not cost priced. This means the price is related to the savings their product enables not its cost of manufacturing. For example, if a product eliminates 50 additional components or cuts the size of the power supply in half that is value people are willing to pay for. Cost reduction can be achieved with value base priced products by using negotiating tactics that approach pricing when the supplier wants something from you.
how can we hold tantalum caps down on pricing when the cost of the raw material is rising world wide and Africa has now been shut off as Australia's mining is opening back up.
Ms Daisy – Freebenchmarking.com assesses price competitiveness and supplier risk. Other important factors that need to go into a thorough benchmarking exercise would review quality methods, delivery performance, cycle time which are all business process related.
Good comment earlier regarding delivering value. We often recommend a concept called “exchange in abundance.” Meaning, deliver more than what may be expected. More true for distributors running value added services than commodity deliveries alone.
Kpeck – One of the best ways to get around tantilum capacitor high prices is to design them out of the circuit. You'd be surprised at how many applications specify tantilum where other lower costs types of capacitors can be used.
Barbara – Regional differences can be brought about by logistics costs, labour costs, taxes – all of which influence the price of components. This is truer of commodities than it is for more differentiated products like ASSPs. Again, here we're talking about costs, not price.
pocharle – The quality of the data is a huge challenge. Too many companies are understaffed in their procurement and component engineering areas or their tools are too old to ensure high quality data. Also, acquisitions bring in many different formats, data standards, and conventions that make consistent analysis difficult.
TaimorZ – quality of components is critical in the assessment of suppliers but we have to define quality before it's clear what we are asking for. Quality is compliance to requirements. If a supplier can meet your requirements, there quality is acceptable and in the vendor due diligence process they should score well.
@Ken So how do you get over that hump? To get to a place where you can provide the customer with accurate results? (I'm guessing the turnaround time increases as the data is more skewed?)
Barbara – Freebenchmarking.com does 2 things on pricing. One, it gives clients target pricing on the most out of line components and two, in section 7 we report our multivariant analysis findings which provides factors for things like distribution mark-ups, regional price variations, channel, etc.
Nemos – When you are negotiating with a supplier to buy something, what you pay to buy that item is the supplier's price and your cost. The supplier's cost would be their cost of materials, the transformation costs and their mark-ups for sales, R&D, and profit etc.
Is there room in the Fortune 1000 supply chain, particularly with consumer products, for a new class of low-cost OCM/ODM component distributors, much like the GENERIC drug market with 30%+ PPV? Bruce
Tvotapka – I agree there is a relationship between quality and reliability over time. Freebenchmarking.com does not have a reliability model it is a price comparison model and supplier risk model. Our Component Engineers assess component quality and reliability outside of Freebenchmarking.com.
Rich, Don’t know about Government being a bigger factor. They will likely try to influence through their procurement practices. Short term, I think there will be price increases because of oil and commodity pricing. Some companies will transition from China to places like Thailand and Vietnam to avoid labour and tax increases. Longer term things will settle down and new technologies will drive cost reduction.
Bruce, I think there is room for new supply chain models. I've complained in previous blogs about the lack of innovation in the supply chain currently. I'd like to see some.
Ms. Daisy, Stimulus packages I believe try to keep the economy from eroding so they should have the impact of stabilizing pricing that had been in free fall. Now I see pricing increase because of oil and commodity pricing and customers need to work hard for cost reduction or to minimize these increases. Without releasing confidential information on clients, we have helped many companies save money by improving their margins or avoiding/ reducing other costs. Check our FREEBENCHMARKING.COM website for testimonials.
@Ken: several discussions have been done at EBN in the past weeks just to underline and take in consideration how smartphones, tablets and mobile communications (as results also of vendors' strategy from Apple and Nokia-Microsoft) could help and improve the whole electronics supply chain; do you think recent “pervasive” evolutions coming from mobile could impact pricing and procurement approach on the market by electronic suppliers?
1) My question is regarding “Price competitiveness Vs Branding a product”. If I reduce my product cost owing to immense competition, am I at the risk of loosing the brand Image, because generaly costlier goods are seen as high quality goods.
2) How does the regional events like the one in Arab uprising affects the outcome of the freebenchmarking analysis ?
Susan – Whenever there is a technology change as in tablets or Smartphones, there is opportunity. I think portability and instant access to anyone will make a difference but exactly how it rolls out is any one’s guess. In some of my blogs I have talked about the current lack of supply chain innovation; maybe these technologies hold the key.
I think we can see from the questions here that there are some factors we can't control–like oil and politics–but others that we can. What are the factors that directly affect pricing?
Barbara – On how customers use the data – My blog on the price change formula talked about target pricing and benchmarking. Customers use our data to find out how competitive they are as a starting point and use our target pricing to begin negotiations with suppliers.
mfbertozzi – I don't know whether China's domination will bring about a revolution, but it will certainly put upward pressure on pricing. I don't think it will change processes, but they will all operate around different reference levels.
@anandvy: If you rduce your product cost you can build a good brand image with a good marketing campaign and good advertising. Show your customers that they can get good value and quality without compromising either of them.
Thanks Ken. You also mentioned risk management, which I imagine includes stuff like oil prices. Do you have a sense as to what portion of an overall price is affected by these risks?
Anandvy – Regional events tend to be time sensitive. If it affects our analysis in Freebenchmarking.com, it would probably be within a given quarter and would not represent a sustainable change. Our data is time-stamped and we can look at trends in pricing from quarter to quarter.
Barbara – the factors that directly affect pricing in order of importance, based on our fidings are negotiating leverage, supply chain design, geography, channel, volume, foreign exchange and payment days.
Susan “ If you rduce your product cost you ” yes but there is always a line that you cant go further because this will effect the quality of your product .
@Barbara-@Ken: why lack of innovation on supply chain? SupplyChainAwards2010 provide several solutions as steps ahead. Are there “obstacles” to deliver them in the real process?
In one of your responses you mentioned demand conditions such as cost of doing business, energy, etc as part of your multivariant analysis findings that is factored into your assessment of competitiveness, what measures of productivity do you use in this calculation? Someone mentioned innovation and quality of products.
Thanks Ken. Let's take leverage. Most folks think that leverage equals volume. Whay is that not always the case? In other words, does your relationship with a supplier also give you levergae?
BSMS – yes regarding overpayment to functionality. We've seen many examples of companies using higher speed grade components than required, PCB tracks being cut without removing the attached componentry and people just paying too much because they believe they are competitive when they are not.
Some organizations outsource procurement functions as part of their cost reduction efforts. Companies like Accenture have taken on the task of helping customers set up procurement services. Can this negatively impact the ability of a supplier and OEM to form a tighter relationship and under what conditions would you consider this a viable option for certain enterprises?
Barbara – Volume is one of the smaller factors. Creating leverage is all about making a supplier want to have you as a customer: Being easy to do business with, being a technology leader so that their product is associated with yours. You need to be strategic to your suppliers and help enable their success.
Ken, Your discussion of the pricing and procurement conditions have centered on effects on and ability of OEMs to gain the best insight and leverage they can in negotiations with suppliers. However, suppliers have to carefully calibrate their own costs too and also identify new markets well ahead. What does a supplier need to do to position itself well within an OEM/EMS provider's vendor list?
Anna Young – When you outsource be careful to ensure that the suppliers see you as the customer. I have less problem outsourcing the buying functions than I do with critical tasks like vendor selection, due diligence, price negotiation. We have seen the greatest cost reduction come from the 20% of components that suppliers have “outsourced” to third parties. Third parties just aren't as hungry as the OEMs.
Many of the suppliers will desinitely look at the volumes since it is very difficult to peak into the OEM's strategic plans. More over, when there is deamnd for certain components like LCD's, the suppliers just want the volumes.
Ken–I definitely agree. But when shortages begin to crop up–as they may or may not be right now–does the volume customer or the strategic customer see the biggest price delta?
Bolaji – Suppliers need to approach their OEMs, EMS providers strategically. They need to identify their needs and offer solutions that are differentiated. Same old, same old does not serve anyone well.
Anna–you hit on an issue that's been dogging the supply chain forever–the more people you put between yourself and your customer, the less direct influence you have. But it cuts costs. It's a moving target.
As a follow up to my question and also related to a few questions that have been asked about who would win in the tablet market, what's your response to the move by companies like Apple, which is spending about $3 billion to lock up display supply. In this kind of situation, is a pricing tool still relevant?
Barbara – When shortages crop up, supply is more important than price. Who gets that scarce part will most likely be the customer with the best relationship. Price will only enter into the discussion if the supplier has added costs to deliver or both customers have equal relationships without strategic value.
Bolaji – The pricing tool isn't relevant to the display market but it is to every other component on an apple product. Apple has made a strategically important move which I think not only serves their supply security, but will also make them first to market with some technology innovation. Apple is impressive.
@Ariella–in concept, yes. If you have a warehouse and UPS has a warehouse, why not use UPS warehouse instead? But now the customer sees the UPS guy, not your guy. Always a dilemma.
Mfbertozzi, features moving to software will improve supplier margins. This will increase R&D through having more software to manage. The selling price of the new vs. the older more hardware intensive product may not change much.
@Barbara yes, but for things like that, people don't necessarily expect the companies own people to show up. Even Amazon uses UPS delivery, and many companies specializing in delivery — even shopping services that deliver nationwide — rely on FedEx
I'd like to post some facts and fictions I wanted to get to earlier: Facts – 1: Pricing targets help get lower costs; 2. Benchmarking to understand your current competitiveness provides focus that drives cost improvement; 3. Sharing information with suppliers enhances the relationship and reduces costs; 4. Supply chains need to be designed for cost and performance and 5. Manufacturers need to see your company (OEMS) as the customer, not the distributor or contract manufacturer. Their marketing and R&D dollars need to go to you.
Fictions: 1. You have to sacrifice quality or service to get better pricing. 2) Volume is the biggest determinant of price; 3. Big companies will always get better pricing than smaller ones; 4. You can negotiate longer payment terms without effecting price; 5. Supplier relationships matter more than competitive pricing; 6. You can't be aggressive (not impolite) in making the supplier aware of your needs; 7. The 80% / 20% rule works on cost management.
@Ariella–you are right, bad example. Let's try again: You can fill a BOM by ordering from each of your 100 suppliers, or place 1 order through a distributor that carries those 100 suppliers. One could argue the distributor–the middleman–is more cost effective becuase you are not placing multiple orders and processing multiple deliveries.
mfbertozzi – I don't see Freebenchmarking.com helping with the counterfeit components. If counterfeit components were put on the market at ridiculously low prices, Freebenchmarking.com would point out this anomoly. However, we would have no way of knowing if they were counterfeit. If counterfeiting is a concern, there are many good companies that can put in counterfeit detection processes.
Joe Bronson, a former president of a major EMS provider, has written on EBN about the difficulties of sourcing older components that have gone out of production especially for military/aviation products. He has also advocated tighter relationship with suppliers. What do you suggest?
Bolaji – I agree with Joe. Close supplier relationships are as important as they have ever been, but also for older components, companies like Rochester Electronics and Vantage IC specialize in the supply of older devices.
All – Thanks everyone for participating. I really enjoyed the conversation. If you have further questions, please contact us through Freebenchmarking.com. Thanks again!
Thanks everyone who joined us today. If you'd like to carry on the discussion, you can post messages and comments to Ken on our site. You can also e-mail myself or Bolaji at and we can raise some of the topics in future blogs or ask Ken to tackle those subjects in future posts.
Susan and Ariella–my first screen test brought “bad” to new heights! It was funny, though, and if I can lighten things up once in awhile, what the heck
@Barbara, I have to really use my imaginaion, then. I don't watch television. But I'm sure I've seen worse in school productions that I have been obliged to attend.
Sorry for the late response . i think when the price seems high it shouldnt taken as fiction ,its fact !but seperating them when the customer bought the product and got satisfied .i mean by this PRODUCT SATISIFACTION is essential .
Hi I am new member & would like to add my views based on my 3 decdes of experince in India in the area of procurement /SCM/Projects of Telecom/Electronics industry –
Price is highly debated in any business situation ,hence if we focus on say consumer product or service, then business volume( elasticity of demand ) has great brearing on pricing.
In India telecom services are lowest priced a cent/Min. Its unimaginbale .But its possible due to hyper competition and also due to lowest operational costs of an opertor. In India one can find many such examples in day to day life – say price of a decent meal – half a dollar, or price of one night stay in a good hotel – 20-25 USD, OR a Clean & safe catract operation ( a health service ) @ max 100USD.
In short price is completley dependent upon location ( country)/volume/braod specifications/urgency/and specific csustomer expectations.
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Transform your product pages with embeddable schematic, simulation, and 3D content modules while providing interactive user experiences for your customers.
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Ken, many of the companies has a fair pricing policy by considering different factors like basic cost of the raw materials, employee’s wage, ROI for investment, marketing and a marginal profit. We know companies are struggling too much to find out a place to sell their products due to much competition. For reducing the price, the seller or company can compensate only up to certain extent in their margins and the next option for them is to compromise in terms of quality, up to an extent.
So it’s the hard time for companies, to come up with some cost controlling mechanism rather than compromising the quality. By considering the above scenario, can you little bit elaborate about your formula, Price change = target pricing x benchmarking x critical first steps > supplier resistance, and (C=a.b.c>R).
Ken, To what extent does China influence component pricing and in which components do you see this. I am especially interested in how much high-tech companies now secure from China and how they determine who would be on their approved vendor list. Do they approach procurement in China with the same strategy as they do in the West or are there key differences?
Ken Bradley,
My question is regarding “Price competitiveness Vs Branding a product”. If I reduce my product cost owing to immense competition, am I at the risk of loosing the brand Image, because generaly costlier goods are seen as high quality goods.
Ken, in current Monopolistic competitions how branding can adds values to products? If branding are happening, how they are going to realize the substantial competitive advantages and gains from such markets. Otherwise, if the pricing is more sensitive, up to what extends the brand value can crack the Pricing Code. If companies are developing a brand-centric philosophy, what are the financial and perceptive values?
Dear Kean, several discussions have been done at EBN on in the past weeks just to underline and take in consideration how smartphones, tablets and mobile communications (as results also of vendors' strategy from Apple and Nokia-Microsoft) could help and improve the whole electronics supply chain; do you think recent “pervasive” evolutions coming from mobile could impact pricing and procurement approach on the market by electronic suppliers?
Dear Ken, we wll appreciate a lot your opinions regarding another topic to discuss: in the electronic world we are assisting on features' moving from hw to sw. Several implementations especially due to “Internet of Things” advent, provided us with examples on sensors controlling and so on. Do you think “Internet of things” are impacting also on pricing in buying fundamental components and also on pricing in selling final end users products?
Ken:I will appreciate your input on the impact of rules (general tax laws, regulations and permiting) that stimulate growth as one of the key factors for competitiveness. I will also like to know your view on the changing rules in China that favors the local economy and your forecast of this on future productivity within China.
Knowing that competitive component pricing impacts productivity, which in turn impacts use of available resources (human capital, financial and natural resources), what has been the overall productivity outcome for companies like yours who have adopted your pricing tool?
@Ken: Hello and welcome to the first edition of EBN Live Chat.
Hello Ken, Susan. Live chat started ?
@Ken – How do you see the relation cost vs. quality? Is it only a pre-conception and myth or the relation always exists?
Ken,
My question is regarding “Price competitiveness Vs Branding a product”. If I reduce my product cost owing to immense competition, am I at the risk of loosing the brand Image, because generaly costlier goods are seen as high quality goods.
@anandvy? Hello. No, not yet. It starts at 2 p.m. EST. I just popped in to leave a question or two.
Hello all… just lurking here
@anandvy: Good question! It's in the line of what I asked Ken. Even though it is as you say most of the time, that people think costly goods are equivalent to high quality I doubt that is a case that can be applied to all sort of goods or all the companies.
Hello, Terry! 🙂 An early bird here.
oh, sorry… I am early
I thought it was at 1 pm ET
Hi Terry–lurk away…me too
Hiya, Susan
Hi Barbara
No it's 2 pm EST.
Right, thanks
Hi, Barbara!
Lots of good chat so far
And good questions
Hello Susan! Thanks for joining!
Terry–yes, and to think we were worried about a big blank screen…
@Terry: it may be the excitement of the new chat that brought us early today. We started discussing about cost Vs quality. This promises to be a quality discussion.
Hey everyone! 🙂
@Ken: What is the best formula to keep competitive prices in a range that doesn't fade customers away and be leader in the market?
Hello world
Hey, @Taimoor/@pocharle! It's early but we can start posting questions for Ken.
HI Barbara
🙂
Hi Anandvy! It's rare we are all on at the same time…welcome!
Hello to all.
Yes, its midnight here :).
Hi Nemos
Hi from Cambridge. I am wondering if the disparity between Western pricing and the so-called China price is as big as people have claimed it is. Any thoughts?
i didn't know that 2 is 21.00 Gr time, my outlook help me .
So, what would you guys really like to see on EBN that's not there right now? I don't want to hijack Ken's show but we've got a few minutes.
Or you could email me privately. bolaji.ojo@ubm.com.
I think live chats were missing on EBN..it's great to have one here..also radio shows and video talk shows might be something of great use to the members..
Video is coming next. As soon as next week as soon as I can convince Barbara she has great TV potentials!
Ken,
What is the biggest difficulty you face when gathering & analyzing your clients' metrics in order to get them on the right track?
Bolaji, Can moderators submit articles ?
@Bolaji: Video blogs, radio talks, webinars.
Good afternoon to those in EST and good day or night to the others.
@Bolaji: great to hear that! That's something to look forward to..
@Susan, good evening to you!
@Bolaji webinars. everyone loves webinars
Hi Bolaji–we can talk about that…:-)
Hello, Ariella!
Hello EBN audience!
I am going to officially start this off by welcoming everyone, and introducing myself–Community Editor of EBN and Bolaji Ojo, our Editor In Chief. Joining us today is Ken Bradley, CEO of Lytica, which has developed the freebenchmarking.com tool to help buyers with their pricing issues. Welcome Ken!
@Ariella and @all: this is how the world becomes united without thinking of time zones.
procurement
Stock Keeper
Stock Keeper
Hi Everyone;
one question : what freebenchmarking.com exactly do ?
Hello Ken, Everyone- With the 1st tier M&A's of 2nd & 3rd tier component distributors for major lines resulting in higher ASP's, is there now room in the supply chain for a new class of competing low-cost OCM component distributors, much like the GENERIC PHARMACEUTICAL market with 30-80% PPV for the same functionality?
@Barbara: Thanks. And thanks to you and Bolaji for making this chat with Ken posible.
FREEBENCHMARKING.COM works by creating price distributions for every supplier’s component and applying these distribution statistics to a client’s submitted bill of materials. Through this we are able to accurately assess a client’s competitiveness, recommend target prices at the component level that are appropriate for the client’s circumstance, find and report alternatives for single sourced components and more.
Hello, Thank you for your questions, glad to be here – let's get started
@Ken: Hello and thanks for joining us today.
Hi Ken,
As you see, we have a backlog of questions, if you'd like to start off with one of those
Pricing targets help get lower costs
Benchmarking to understand your current competitiveness provides focus that drives cost improvement
Sharing information with suppliers enhances the relationship and reduces costs
Supply chains need to be designed for cost and performance
Manufacturers need to see your company (OEMs) as the customer, not the distributor or contract manufacturer. Their marketing and R&D dollars need to go to you.
Hi Ken,
Good to have you here. Most of the times the component prices offered to the large OEM's is always competetive. Do you think this tool will still help those OEM's
elctrnx-Lyf – You would be surprised at how many large OEMS think they have competitive pricing when they really don't. This tool definitely helps.
We've had trouble with the size limit for our data input, so we're going to be feeding back some comments in smaller blocks.
@Ken: What is the best formula to keep competitive prices in a range that doesn't fade customers away and be leader in the market?
Ken, can you cover some of the factors that go into pricing, such as geography, materials etc.?
Ken, can you explain the process from start? What happens when a supplier or a buyer signs up?
Susan, the best formula is to create value for your customer. Competitive pricing is important as is what you’re getting for the money you spend.
My question is regarding “Price competitiveness Vs Branding a product”. If I reduce my product cost owing to immense competition, am I at the risk of loosing the brand Image, because generaly costlier goods are seen as high quality goods.
TaimoorZ – Please contact us through our website and we will be glad to explain more. The process flow is outlined on the website.
Ken, also speak about the logistics involved with these “best cost countries”.
Hawk, China has a strong influence on costs in most commodities. I cannot think of one where they don’t. Whether this influence in cost translates into a strong influence on price is another matter. Chinese companies selling in China generally offer low pricing. Western companies manufacturing in China but selling globally may or may not reflect lower costs in their pricing. (As with Chinese companies selling globally although Chinese companies try to capture market share with low price.) My belief is that most better companies approach procurement with the same standards of quality regardless of source. It is the quality of the product that they are selling that is key to their brand image. Many Asian suppliers have historically needed help in achieving the quality standards, although today there are many Asian companies who lead in the quality and technology field. I think the biggest difference between Chinese or Asian companies and western ones is the importance of relationship over contract.
What are the key factors that are used to measure competiveness of OEM's and what benchmarks or indicies are used?
Toms, I am not sure what you mean by monopolistic competition but if you mean differentiation as is achieved by many ASSP companies, then their products are value priced and not cost priced. This means the price is related to the savings their product enables not its cost of manufacturing. For example, if a product eliminates 50 additional components or cuts the size of the power supply in half that is value people are willing to pay for. Cost reduction can be achieved with value base priced products by using negotiating tactics that approach pricing when the supplier wants something from you.
@anadvy that's an interesting point. You mean that if your price drops too far, your customers will think your product is of low quality
how can we hold tantalum caps down on pricing when the cost of the raw material is rising world wide and Africa has now been shut off as Australia's mining is opening back up.
Ms Daisy – Freebenchmarking.com assesses price competitiveness and supplier risk. Other important factors that need to go into a thorough benchmarking exercise would review quality methods, delivery performance, cycle time which are all business process related.
Good comment earlier regarding delivering value. We often recommend a concept called “exchange in abundance.” Meaning, deliver more than what may be expected. More true for distributors running value added services than commodity deliveries alone.
@Ken: Thanks.
@Ken – How do you see the relation Cost vs.Quality? Is it only a pre-conception and myth or the relation always exists?
Ken, a common complaint among buyers is the price of components differs from region to region. Can you explain why that is?
Kpeck – One of the best ways to get around tantilum capacitor high prices is to design them out of the circuit. You'd be surprised at how many applications specify tantilum where other lower costs types of capacitors can be used.
Ken,
What is the biggest challenge you face when it comes to assessing your customer's metrics (the data they provide you).
I had a similar thought as @Susan…how do you take into account of quality of components while assessing suppliers?
Barbara – Regional differences can be brought about by logistics costs, labour costs, taxes – all of which influence the price of components. This is truer of commodities than it is for more differentiated products like ASSPs. Again, here we're talking about costs, not price.
It would be a good idea to eliminate the tantalums from the design. But it isn't true that in some places you can't really take them off completely?
@TaimoorZ you mean so that you are comparing Macintosh apples iwth Macintosh apples rather than with, say Cortlands?
pocharle – The quality of the data is a huge challenge. Too many companies are understaffed in their procurement and component engineering areas or their tools are too old to ensure high quality data. Also, acquisitions bring in many different formats, data standards, and conventions that make consistent analysis difficult.
@Ariella..yes! that's one good analogy…how do you compare two products which may be the same or similar on paper, but not so in reality
Ken, true. So how does your tool use these factors to calculate a fair price? I think what people are relly looking for is a baseline, correct?
TaimorZ – quality of components is critical in the assessment of suppliers but we have to define quality before it's clear what we are asking for. Quality is compliance to requirements. If a supplier can meet your requirements, there quality is acceptable and in the vendor due diligence process they should score well.
@Ken So how do you get over that hump? To get to a place where you can provide the customer with accurate results? (I'm guessing the turnaround time increases as the data is more skewed?)
“Again, here we're talking about costs, not price.” Ken What is the difference?
Barbara: Thanks, that is the benchamrk or marker I wanted to know about
right
Barbara – Freebenchmarking.com does 2 things on pricing. One, it gives clients target pricing on the most out of line components and two, in section 7 we report our multivariant analysis findings which provides factors for things like distribution mark-ups, regional price variations, channel, etc.
@Steve: Right!
Thanks
Quality is also a measure of reliability over time. Is this factored into your models?
Nemos – When you are negotiating with a supplier to buy something, what you pay to buy that item is the supplier's price and your cost. The supplier's cost would be their cost of materials, the transformation costs and their mark-ups for sales, R&D, and profit etc.
Is there room in the Fortune 1000 supply chain, particularly with consumer products, for a new class of low-cost OCM/ODM component distributors, much like the GENERIC drug market with 30%+ PPV? Bruce
@Ken,
How does the regional events like the one in Arab uprising affects the outcome of the freebenchmarking analysis ?
@Ken: so is there any standard compliance criteria, or this is specific to the buyer's requirements?
@Barbara, @all: good afternoon, what about backlog questions?
Ken, so the data is catered to the customer?
Good question, Anandvy.
Tvotapka – I agree there is a relationship between quality and reliability over time. Freebenchmarking.com does not have a reliability model it is a price comparison model and supplier risk model. Our Component Engineers assess component quality and reliability outside of Freebenchmarking.com.
@Ken you mean that price is always set in relation to the seller.
Rich, Don’t know about Government being a bigger factor. They will likely try to influence through their procurement practices. Short term, I think there will be price increases because of oil and commodity pricing. Some companies will transition from China to places like Thailand and Vietnam to avoid labour and tax increases. Longer term things will settle down and new technologies will drive cost reduction.
@mfbertozzi: Copy and paste again.
Bruce, I think there is room for new supply chain models. I've complained in previous blogs about the lack of innovation in the supply chain currently. I'd like to see some.
Ms. Daisy, Stimulus packages I believe try to keep the economy from eroding so they should have the impact of stabilizing pricing that had been in free fall. Now I see pricing increase because of oil and commodity pricing and customers need to work hard for cost reduction or to minimize these increases. Without releasing confidential information on clients, we have helped many companies save money by improving their margins or avoiding/ reducing other costs. Check our FREEBENCHMARKING.COM website for testimonials.
@Ken: several discussions have been done at EBN in the past weeks just to underline and take in consideration how smartphones, tablets and mobile communications (as results also of vendors' strategy from Apple and Nokia-Microsoft) could help and improve the whole electronics supply chain; do you think recent “pervasive” evolutions coming from mobile could impact pricing and procurement approach on the market by electronic suppliers?
-Thx Susan
Barbara – All Freebenchmarking.com reports are customer specific so the data is catered to the customer.
1) My question is regarding “Price competitiveness Vs Branding a product”. If I reduce my product cost owing to immense competition, am I at the risk of loosing the brand Image, because generaly costlier goods are seen as high quality goods.
2) How does the regional events like the one in Arab uprising affects the outcome of the freebenchmarking analysis ?
Ken, thanks.
Ken, so can you give us a few examples how customers use that data?
@Ken:Thx
@Ken: Yes, there is a need for innovation and creativity. New models.
Ariela – See my response to Toms on price points of agreement
@Ken: China domination on rare earth components could bring a revolution on pricing and procurement process?
Susan – Whenever there is a technology change as in tablets or Smartphones, there is opportunity. I think portability and instant access to anyone will make a difference but exactly how it rolls out is any one’s guess. In some of my blogs I have talked about the current lack of supply chain innovation; maybe these technologies hold the key.
@Ken I was referring to your response to Nemos
@anandvy: Good points..I was also thinking about your second point..how are the unexpected events taken into account?
I think we can see from the questions here that there are some factors we can't control–like oil and politics–but others that we can. What are the factors that directly affect pricing?
@Ken If you had to choose, iPad2 or Xoom?
Barbara – On how customers use the data – My blog on the price change formula talked about target pricing and benchmarking. Customers use our data to find out how competitive they are as a starting point and use our target pricing to begin negotiations with suppliers.
Do you think ODM/OEM's are currently overpaying for unnecessary component functionality?
who are the big component supplier winners in the tablet boom?
mfbertozzi – I don't know whether China's domination will bring about a revolution, but it will certainly put upward pressure on pricing. I don't think it will change processes, but they will all operate around different reference levels.
@anandvy: If you rduce your product cost you can build a good brand image with a good marketing campaign and good advertising. Show your customers that they can get good value and quality without compromising either of them.
Thanks Ken. You also mentioned risk management, which I imagine includes stuff like oil prices. Do you have a sense as to what portion of an overall price is affected by these risks?
Anandvy – Regional events tend to be time sensitive. If it affects our analysis in Freebenchmarking.com, it would probably be within a given quarter and would not represent a sustainable change. Our data is time-stamped and we can look at trends in pricing from quarter to quarter.
@Steve: good question..i was also wondering about the tablet market..how is the component shortage (or potential shortage) being handled?
@Ken: How are unexpected events taken into account, if at all?
Barbara – the factors that directly affect pricing in order of importance, based on our fidings are negotiating leverage, supply chain design, geography, channel, volume, foreign exchange and payment days.
Susan “ If you rduce your product cost you ” yes but there is always a line that you cant go further because this will effect the quality of your product .
pocharle – both 🙂
@Ken: Thanks. I agree. I'll check your blogs to read more about your view on innovation.
@Barbara-@Ken: why lack of innovation on supply chain? SupplyChainAwards2010 provide several solutions as steps ahead. Are there “obstacles” to deliver them in the real process?
@Ken aww too P.C.
In one of your responses you mentioned demand conditions such as cost of doing business, energy, etc as part of your multivariant analysis findings that is factored into your assessment of competitiveness, what measures of productivity do you use in this calculation? Someone mentioned innovation and quality of products.
Thanks Ken. Let's take leverage. Most folks think that leverage equals volume. Whay is that not always the case? In other words, does your relationship with a supplier also give you levergae?
BSMS – yes regarding overpayment to functionality. We've seen many examples of companies using higher speed grade components than required, PCB tracks being cut without removing the attached componentry and people just paying too much because they believe they are competitive when they are not.
@Nemos: Yes, exactly. @ananvy was wondering what would it happen in case of reducing product cost.
Anna – We see price differences from our multi-variant analysis of Freebenchmarking.com data of 30% between Asian and Western pricing
Some organizations outsource procurement functions as part of their cost reduction efforts. Companies like Accenture have taken on the task of helping customers set up procurement services. Can this negatively impact the ability of a supplier and OEM to form a tighter relationship and under what conditions would you consider this a viable option for certain enterprises?
mfbertozzi – I don't see the innovation like there was 15-20 years ago with the Dell model, Walmart and others. Please share your examples.
@Ken: Posting this again for others and myself: How are unexpected events taken into account, if at all?
Barbara – Volume is one of the smaller factors. Creating leverage is all about making a supplier want to have you as a customer: Being easy to do business with, being a technology leader so that their product is associated with yours. You need to be strategic to your suppliers and help enable their success.
Ken, Your discussion of the pricing and procurement conditions have centered on effects on and ability of OEMs to gain the best insight and leverage they can in negotiations with suppliers. However, suppliers have to carefully calibrate their own costs too and also identify new markets well ahead. What does a supplier need to do to position itself well within an OEM/EMS provider's vendor list?
@Ken -@Barbara: green for example is bringing on the field several new vision and processes on manufacturing and materials to supply or recover
Anna Young – When you outsource be careful to ensure that the suppliers see you as the customer. I have less problem outsourcing the buying functions than I do with critical tasks like vendor selection, due diligence, price negotiation. We have seen the greatest cost reduction come from the 20% of components that suppliers have “outsourced” to third parties. Third parties just aren't as hungry as the OEMs.
Many of the suppliers will desinitely look at the volumes since it is very difficult to peak into the OEM's strategic plans. More over, when there is deamnd for certain components like LCD's, the suppliers just want the volumes.
Ken–I definitely agree. But when shortages begin to crop up–as they may or may not be right now–does the volume customer or the strategic customer see the biggest price delta?
Bolaji – Suppliers need to approach their OEMs, EMS providers strategically. They need to identify their needs and offer solutions that are differentiated. Same old, same old does not serve anyone well.
elctrnx_lyf – Agree, some companies just want to be commodity players and have set their business model up to be successful on very low margins.
Anna–you hit on an issue that's been dogging the supply chain forever–the more people you put between yourself and your customer, the less direct influence you have. But it cuts costs. It's a moving target.
@Barbara so the middleman actually saves you money?
As a follow up to my question and also related to a few questions that have been asked about who would win in the tablet market, what's your response to the move by companies like Apple, which is spending about $3 billion to lock up display supply. In this kind of situation, is a pricing tool still relevant?
Barbara – When shortages crop up, supply is more important than price. Who gets that scarce part will most likely be the customer with the best relationship. Price will only enter into the discussion if the supplier has added costs to deliver or both customers have equal relationships without strategic value.
@Ken: Posting this again for others and myself: How are unexpected events taken into account, if at all?
Bolaji – The pricing tool isn't relevant to the display market but it is to every other component on an apple product. Apple has made a strategically important move which I think not only serves their supply security, but will also make them first to market with some technology innovation. Apple is impressive.
@Ariella–in concept, yes. If you have a warehouse and UPS has a warehouse, why not use UPS warehouse instead? But now the customer sees the UPS guy, not your guy. Always a dilemma.
Clairvoyant – see my earlier response earlier in the discussion.
Mfbertozzi, features moving to software will improve supplier margins. This will increase R&D through having more software to manage. The selling price of the new vs. the older more hardware intensive product may not change much.
@Barbara yes, but for things like that, people don't necessarily expect the companies own people to show up. Even Amazon uses UPS delivery, and many companies specializing in delivery — even shopping services that deliver nationwide — rely on FedEx
@Bolaji,@Ken,@Barbara: last post from Bolaji is going back to counterfeit products discussion; could pricing tool help on this issue?
-Thx Ken for repling on previous posts/questions
Ken–agreed. But supply shortages are a great opportunity to raise prices. How can buyers counter that?
@Ken: Thanks for the earlier reply. I missed that!
I'd like to post some facts and fictions I wanted to get to earlier: Facts – 1: Pricing targets help get lower costs; 2. Benchmarking to understand your current competitiveness provides focus that drives cost improvement; 3. Sharing information with suppliers enhances the relationship and reduces costs; 4. Supply chains need to be designed for cost and performance and 5. Manufacturers need to see your company (OEMS) as the customer, not the distributor or contract manufacturer. Their marketing and R&D dollars need to go to you.
Fictions: 1. You have to sacrifice quality or service to get better pricing. 2) Volume is the biggest determinant of price; 3. Big companies will always get better pricing than smaller ones; 4. You can negotiate longer payment terms without effecting price; 5. Supplier relationships matter more than competitive pricing; 6. You can't be aggressive (not impolite) in making the supplier aware of your needs; 7. The 80% / 20% rule works on cost management.
@Ken that's a very clear summation.
@Ariella–you are right, bad example. Let's try again: You can fill a BOM by ordering from each of your 100 suppliers, or place 1 order through a distributor that carries those 100 suppliers. One could argue the distributor–the middleman–is more cost effective becuase you are not placing multiple orders and processing multiple deliveries.
mfbertozzi – I don't see Freebenchmarking.com helping with the counterfeit components. If counterfeit components were put on the market at ridiculously low prices, Freebenchmarking.com would point out this anomoly. However, we would have no way of knowing if they were counterfeit. If counterfeiting is a concern, there are many good companies that can put in counterfeit detection processes.
Joe Bronson, a former president of a major EMS provider, has written on EBN about the difficulties of sourcing older components that have gone out of production especially for military/aviation products. He has also advocated tighter relationship with suppliers. What do you suggest?
Barbara – buyers need to keep their companies seen by suppliers as strategically important.
@Ken: Great summary and true.
@Ken: thx for your prompt reply and very clear examples
Ken–great way to wrap the conversation up. Thanks for your time today!
@Ken Thank you.
Bolaji – I agree with Joe. Close supplier relationships are as important as they have ever been, but also for older components, companies like Rochester Electronics and Vantage IC specialize in the supply of older devices.
@Barbara, thanks for clarifying with that example.
@mfbertozzi: good point about counterfeit products…i think it's difficult to take into account of these
All – Thanks everyone for participating. I really enjoyed the conversation. If you have further questions, please contact us through Freebenchmarking.com. Thanks again!
@Ken: Thanks!
thank you Ken ,
Awesome, Ken. We would love to have you back.
Thanks everyone who joined us today. If you'd like to carry on the discussion, you can post messages and comments to Ken on our site. You can also e-mail myself or Bolaji at and we can raise some of the topics in future blogs or ask Ken to tackle those subjects in future posts.
in video mode 😉
Thanks for the great session, Ken!
Bolaji – Would love to do it again soon.
many thanks 2 Barbara, Ken & all for this very interesting live chat today!
Thanks, Ken, Barbara, and Bolaji.
What is with you people and video?!
🙂
Barb
@Barbara: We want to see your acting skills. 😀
ahahahh bye bye. can i say good night ?
@Barbara, actually I notice that blog posts tend to get more comments on boards like this than video posts.
@Barbara, also note that if you do opt for video, it pays to test the camera angles. I recently saw one that made the peron face look lopsided.
should be person's
@Nemos: Yes, good night. It's time to say good night for me, too.
@Susan, @Nemos, good night to you.
Susan and Ariella–my first screen test brought “bad” to new heights! It was funny, though, and if I can lighten things up once in awhile, what the heck
And thanks to all that stayed up late to join us!
G'nite
@Ariella: @Nemos is obviously on this side of the world.
@Barbara now you definitely have piqued our interest about that.
Thanks Everyone!
@Barbara: Just choose good lighting and good make up. The rest comes along. 🙂 Talent is what matters, too. And a good script, of course!
@everybody: good night.
@Ariella–just think about the worst American Idol audition you've ever seen
@Barbara, I have to really use my imaginaion, then. I don't watch television. But I'm sure I've seen worse in school productions that I have been obliged to attend.
@Ariella–those are pretty close
Ha! Bye for now.
Sorry for the late response . i think when the price seems high it shouldnt taken as fiction ,its fact !but seperating them when the customer bought the product and got satisfied .i mean by this PRODUCT SATISIFACTION is essential .
Hi I am new member & would like to add my views based on my 3 decdes of experince in India in the area of procurement /SCM/Projects of Telecom/Electronics industry –
Price is highly debated in any business situation ,hence if we focus on say consumer product or service, then business volume( elasticity of demand ) has great brearing on pricing.
In India telecom services are lowest priced a cent/Min. Its unimaginbale .But its possible due to hyper competition and also due to lowest operational costs of an opertor. In India one can find many such examples in day to day life – say price of a decent meal – half a dollar, or price of one night stay in a good hotel – 20-25 USD, OR a Clean & safe catract operation ( a health service ) @ max 100USD.
In short price is completley dependent upon location ( country)/volume/braod specifications/urgency/and specific csustomer expectations.