The purchasing process is not supposed to be adversarial but too often negotiations between buyers and sellers can turn out to be more like a boxing match where one or both parties emerge with bloodied noses. Situations like this can and should be avoided, says Mark Tayles, a senior sales and marketing executive with Lytica Inc., a Canadian provider of pricing and other supply chain data and market intelligence to the electronics industry.
Tayles is a veteran of the electronics components distribution business, too, having worked at some of the industry’s top distributors before joining Lytica. His perspective on the role of distributors in the supply chain and how OEM purchasing and procurement experts fare in discussions with components vendors is therefore highly instructive for anyone on the sales side, be they buyers or sellers.
First, let’s recognize the fact there is a lot of pricing aberrations in the purchasing process. Sure, more procurement is occurring online and engineers especially like buying – mainly design-related – components online. One reason behind this is that engineers don’t like to be badgered by vendors and prefer the impersonal nature of online purchasing. For volume shipments, though, engineers who buy large quantities for manufacturing must step out from behind the desk into the negotiations necessary to secure best pricing for their companies.
This is where things get tricky, according to Tayles. The pricing aberrations I referred to above can result in buyers paying completely different prices for the same components and approximately equal volume shipment. Why? This is often because buyers tend to believe they have received the best pricing versus other buyers when the reality is often quite different. This distorted reality affects even purchasers and procurement employees with some of the largest OEMs in the industry. Who would expect HP or Apple to pay more for components than competitors, for example?
It can happen, though. Data from Lytica’s Freebenchmarking.com confirm companies can reduce their overall component expenses – by millions of dollars in the case of the biggest buyers – simply by going into the negotiation room with “market knowledge,” said Tayles. Negotiation is an art, Tayles noted, adding that the best negotiators do not underestimate the power of information about current pricing conditions, component availability, possible replacement parts and even the person sitting on the other side of the table or on the other side of the phone.
“Go to the table with market knowledge,” Tayles said. “If you have good information about the person across the table from you then you’ve got the most important tool you need to conduct an effective negotiation.”
It will also be a negotiation that doesn’t leave either party feeling bruised and battered too. You gain a long-term partner when the knowledge you bring to the negotiation table is both accurate and up-to-date. With accurate and good intelligence about the seller and the selling environment you would be able to negotiate fair pricing for your company and enable the seller to enjoy the experience by eliminating the feeling of having been forced to give up a healthy margin to clinch the sale.
That’s probably one of the more difficult and painful results of component pricing negotiations in the electronics industry. Certain companies are known to be difficult to do business as they cannot be neglected due to their huge purchasing powers and also because wield this awesome leverage to secure terms that sellers sometimes consider unfair. Negotiations with these companies are often one-sided with the buyer dictating the terms of the transaction.
Component manufacturers know these companies and never hesitate to pay them back with the same coins when supplies become tight.