We have had a great deal of experience with RFQ’s and resulting quotes during our 10 years of working to help buyers find excellent suppliers. Most of the time the primary issue is price, but there are often many other important factors. This is an article we wrote years ago from a source unfortunately lost to history.
Obviously the conditions around an OEM procurement professional seeking a supplier can run the gamut from simply trying to find an alternative to some existing relationship to a new product startup to a very sophisticated supply chain issue for a medical device. Each of these presents unique details.
Here are some thoughts on buyer-supplier negotiations about manufacturing:
-Research the Actual Costs: “There’s no better position to be in when negotiating a price than to know what it cost the guy on the other side…. “. Proficient Sourcing is a large group of custom manufacturers, and buyers may not have experience in pricing the cost of operating sophisticated equipment, such as large CNC gantry mills. On the other hand, we have long suggested consideration of the buyer supplying materials (if appropriate), and there are good reasons why this can be advantageous to both sides. This might be especially worthwhile if the buyer is a large entity with some experience purchasing the particular material. Even if supplying material is not an option, the buyer may have knowledge of material costs, and might request the supplier candidate specify their cost to see if overall numbers are reasonable.
-Discover Areas of Mutual Gain: “…For example, if the supplier won’t budge on price, focus instead on other areas of the agreement…”. In our particular case the buyer is seeking a supplier to manufacture a particular quantity of (usually) parts within a specific time frame. In some cases the items to be quoted are one-time events, in which case there’s not much wiggle room for “other areas”. If this is not the case, the buyer might inquire about the effect of downstream volume, possibility of inventorying, shipment options, blanket orders, and perhaps other variables that a supplier might find advantageous, and thus offer a better deal. Most suppliers we know are interested to know if this first opportunity might lead to others In the future.
-Quote Multiple Suppliers: We have not seen much leverage created by the knowledge there are competitive suppliers. We assume that competition exists. We think seeking multiple bids makes a great deal of sense, and one compelling reason is any particular custom supplier may have conflicting demands upon their equipment. This could impact future availability so the buyer would be well advised to have some backups available. The winner of the first bid may not be so available next time or the conditions there might be very different.
-High/Low Quatity Quoting: Within limits, we believe this can be both a dangerous or a useful conversation for both sides. The basic negotiating tactic recommended by some is to get a price for a large quantity and then find out how price changes for a lesser amount, which apparently is the quantity desired in the first place. We think this can be a dangerous tactic, and might annoy the bidder into some less useful result. We often have candidates bid on various quantities, and that seems a valid approach. If the buyer is looking at multiple quantities, you will easily find out how volume affects price in a way that’s less likely to appear manipulative. One watchout is that eventually the supplier will learn if some future gigantic quantity originally quoted is not possible, it will damage the trust needed for a good relationship. Be careful.
-Reference Their Customers: “The best data you can get from a supplier is from their customers”. This is excellent advice, even for a relatively small buy. If the candidate is not forthcoming with customer names there must be a reason why, and most of those reasons are not good. But find out the reason—it might be a valid one. On the other hand, it’s almost certain you will be dealing with a positive-biased population. Even so careful questioning about such subjects as speed of service, response to difficulties, ease of communications, and response to customer problems should reveal a good deal about the prospects of success with the candidate. It’s also useful to compare customer experience against the supplier’s claims—if you can.
Proficient Sourcing exists to provide supplier candidates to buyers who are interested in obtaining good candidates and saving time and effort in the bargain. Our network of suppliers has a history of good performance (and are thus likely to provide references) along with excellent service and competitive pricing. We are ready whenever you are!