The Internet has enabled buyers of all kinds to compare pricing information on an item before the item is bought. In the electronics supply chain, online and subscription tools allow buyers to analyze the costs behind an electronics component’s final price. This information, says Paul Robinson, senior economist, IHS Pricing & Purchasing, gives buyers an advantage.
“Suppliers will never volunteer to lower their prices, of course,” Robinson said during a recent Webcast. “Because of that, the only way for purchasers to parlay falling raw-materials expenses into real cost savings is to arm themselves with critical knowledge that can give them an edge in price negotiations.”
Electronics buyers now have a variety of tools they can use to analyze costs. Some are available through trading platforms offered by E2open and GT Nexus; others through subscription services such as freebenchmarking.com.
IHS recently demonstrated its Purchasing Analyzer tool in the raw materials market. Materials play a significant role in pricing, whether the end product is an electronics component or an aluminum enclosure.
“Tremendous commodity price volatility has generated additional need for reliable and timely pricing information,” Robinson said. “By employing the right tools and knowledge, companies typically achieve 1 to 1.5 percent savings on their total material spend – a figure that can translate to big savings for most manufacturers.”
As an example, Robinson presented a case study on an industrial valve. The analysis tool itemized the cost structure of the valve including labor and raw materials. One of the primary material costs of the valve is the iron foundry work, which accounted for a major portion of the total expense, at 10.2 percent. A forecasting tool revealed that cost increases for iron foundries are expected to slow to a 2.7 percent compound annual growth rate from 2012 through 2015, down from 5.4 percent from 2005 through 2011.
“This reduction in cost increases represented a kink in the forecast — a kink that presented an opportunity for the buyer to negotiate a lower price,” Robinson said.
A more comprehensive analysis showed that the total cost increase for components using iron should amount to just 0.4 percent in 2013—the lowest rate of increase since the recessionary year of 2009.
In other words, the supply of iron ore is increasing at a faster rate than demand. “This means the supplier is seeing lower costs, which can be the key negotiating point for the buyer. By leveraging this information, a buyer saving 3 percent on this purchase, amounts to saving $30,000 for $1 million in spend,” Robinson said.
Additional information is available at the IHS Pricing and Purchasing site.