There is a little company in Massachusetts that makes manifold and valve components for medical instrumentation systems. The little company was making the valve manifold for a certain leading mobile, therapeutic oxygen system manufacturer until 2009.
The little company never raised its price over the 7 year history of the project, yet found innovative and progressive ways to increase efficiency in the face of rising hard costs (energy, materials, services...) all the while putting in a level of quality that was rigidly high and never compromised.
One day this little company was informed that its $10 price was under cut by a Chinese manufacturer @ $6. The little company found new efficiencies and took a big picture view, cutting the price to $8.50 along with an assurance from the customer that it would retain the business, which was substantial.
Until that is, the Chinese company dropped down to 4 bucks in conjunction with the customer's engineering department re-design, making it easier to manufacture (this is code for 'they reduced the quality stringency', on a medical application no less). Funny, the little American company never got a chance to quote the re-designed part.
Regardless, the little company knew it could not get into a shooting match lest it 'fly up it's own ass', so the little company said 'goodbye long time loyal medical device maker and thank you for your business'. With that, the little company moved on to greener pastures.
Today, the little company receives notice from the customer that the Chinese supplier is not working out due to delivery issues and they would like the little company to quote once again - at a target price that is not near the $4 lunacy, but nowhere near where the little company will now make it for.
Hmmm, what should the little company do? Think little company... THINK. How to handle this?
http://www.biiwii.blogspot.com
http://www.biiwii.com
The little company never raised its price over the 7 year history of the project, yet found innovative and progressive ways to increase efficiency in the face of rising hard costs (energy, materials, services...) all the while putting in a level of quality that was rigidly high and never compromised.
One day this little company was informed that its $10 price was under cut by a Chinese manufacturer @ $6. The little company found new efficiencies and took a big picture view, cutting the price to $8.50 along with an assurance from the customer that it would retain the business, which was substantial.
Until that is, the Chinese company dropped down to 4 bucks in conjunction with the customer's engineering department re-design, making it easier to manufacture (this is code for 'they reduced the quality stringency', on a medical application no less). Funny, the little American company never got a chance to quote the re-designed part.
Regardless, the little company knew it could not get into a shooting match lest it 'fly up it's own ass', so the little company said 'goodbye long time loyal medical device maker and thank you for your business'. With that, the little company moved on to greener pastures.
Today, the little company receives notice from the customer that the Chinese supplier is not working out due to delivery issues and they would like the little company to quote once again - at a target price that is not near the $4 lunacy, but nowhere near where the little company will now make it for.
Hmmm, what should the little company do? Think little company... THINK. How to handle this?
http://www.biiwii.blogspot.com
http://www.biiwii.com
You can't compete on price so add another dimension to the negotiating table, time - if you can do volume guarantees for a premium then you can still make your gross margins.
ReplyDeleteI have a picture of a GI drinking coffee that you can borrow
ReplyDeleteSounds like you have the edge now. Quote high, let them think they are knocking you down a bit, you'll still emerge the winner.
ReplyDeleteSad and weird world though, so much business given to our socialist competitors/enemies in the name of capitalism.
I have a picture of an owl wearing a sombrero that you can borrow....
ReplyDeleteIf the RFQ is unreasonable, let someone else grab it... or let the client sweat as nobody takes it.
I guess it could be a tough situation. My experience is that the old 80:20 rule rules. Forget about the time wasters. The price of the component you produced did not impact the price of the medical equipment it was for. Therefor what mattered was the relationship. They were the ones who broke the relationship. Fool me once...
ReplyDelete