Today we present a real buyer-seller situation in process. Our opinion is we are missing something, and encourage you to offer opinions, suggestions, and advice on our blog.
Proficient Sourcing helps companies find suitable supplier candidates for custom manufacturing. We have had a superficial relationship with an OEM making very precise products that use a variety of close tolerance metal parts. We are interested in competing for this machining business, and have quoted a few items over the past several years.
The OEM’s parts appear to be exactly what several shops do very well, so we should be able to compete for this work. However, to date no quote has been successful, and the OEM has a reputation for extreme cost consciousness. We now understand they are supplied by an offshore parent, and historically have had no compelling interest in localizing supply. Apparently this is now changing.
Over the past 9 months the purchasing management has changed, and we finally won a quote for a small job. This particular job was for a very low quantity and fast turnaround of precisely machined aluminum parts approximately 2” square and 1” thick with several intricate details.
Clicking here will connect you to information if you have need of low quantity, fast turnaround precision machining.
With that success we visited the OEM and learned of a new initiative to localize a large number of critical parts. Apparently company growth has been sufficient to stretch the parent’s capacity to its limit. We received target pricing, quantities, drawings and specs for several of these parts. We found 6 interested candidates.
The project from our (the supplier) side is complicated by the need to translate foreign language drawings and specifications. This requirement alone eliminated 2 of our 6 candidates, who believed they could not quote the parts with confidence in their translations. Another of the 6 opted out for different reasons, and the remaining 3 offered “approximate” quotes, with lots of stated questions in their quotes.
We suggested this approach in order to give the OEM some idea of what our candidates were thinking so they could get some idea of the competitive landscape. None of these approximate numbers was very close to the target prices.
We pushed for candidate plant visits so both sides could discuss some of the issues in question. In the meantime, a second opportunity was disclosed.
In this second case the OEM had a large seasonal customer, and the big bulge in required products occurred late in this summer (now!). The required quantities made finding a supplemental source important, or so we were told. Again, we acquired specs and drawings for 5 parts, and the cumulative volume for a few months supply of these 5 different parts was a total of 2000 parts to be supplied over 3 months.
The same issues arose for these parts as well, so one candidate was able to obtain a plant visit in late May. This company quoted one part in the same ballpark as the target price, so we were hopeful. During the visit our candidate was able to observe the parts in question being made and most questions were answered. Shortly after this visit this supplier offered to meet the target price (almost) for 2 of the 5 parts with these 2 provisions:
1. The OEM would supply material and our candidate would subtract that cost from his price in order to meet the target price.
2. The parts required precision grinding, which the OEM was doing internally. Our candidate would have to oursource the grinding, so the deal was for the OEM to perform the grinding function. This was the only price concession asked of the OEM.
By mid-June this proposal was flatly rejected and no further visits by our other candidates were scheduled. We assumed the OEM had found alternative sources for their work, and all parties on our side assumed a suspended animation position.
For 2 months we could not reach our contacts at the OEM, further supporting the possibility they had moved on to other supplier alternatives. However, we finally made contact last week, only to learn no alternative sources were in hand and the clock was ticking on their capacity crunch for the seasonal work.
We repeated our offer and now expect more discussion by the time you read this. The outcome is unknown.
We recognize the buyer and seller work from different bases, and we have only our side of this story. But the obvious questions include these:
Was the urgency as indicated, given no apparent progress in finding the supplemental capacity we believed was an urgent need as of our May visit?
Is a flat rejection of our offer to essentially meet the target price (except for the grinding, a minor cost element which offers the OEM assurance of meeting needed tolerances) a reasonable action?
This situation has been ongoing since March. The OEM has a need for localizing a large number of parts over the next year or so, and an immediate need for supplemental capacity to meet the seasonal demand. The company has a position of very fast order fulfillment and premium quality so we have been quite bewildered by a situation that does not seem to fit those circumstances.
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