'Sorry, no price break possible'
How to cut costs for cobalt in electrical generators
By Staff -- Purchasing, 8/16/2007 2:00:00 AM
In a previous role as global procurement leader of a major aerospace manufacturer, Jeff Garg was responsible for buying cobalt for electrical generators. Cobalt prices increased dramatically, and Garg asked the single-source supplier if he could provide price stability. The supplier refused, saying the metal was not traded on the London Metals Exchange so financial hedging was not an option.
Problem: Faced with the supplier’s refusal to cooperate or collaborate, Garg went to his engineering group. The group said they had tried to switch to other suppliers, but the electrical properties of other materials were not “a perfect match,” and therefore replacing the current materials and supplier was not possible.
Among the possibilities: Continue paying the ever-increasing cobalt costs; change the generator design. What would you have done? See purchasing.com/negotiations for the solution the buyer negotiated.
Solution: Garg knew that the supplier was buying large quantities of cobalt ingots, and so he asked for a meeting with the supplier’s procurement vice president rather than continue dealing with the supplier’s sales manager. The supplier procurement VP told him there was a secondary market for cobalt trading that he could work with directly. Garg contacted a broker in the secondary market, who informed him that a material-based hedge was possible that would stabilize prices for 18 months. He convinced the supplier to contract with the broker for a stable price for a guaranteed volume over 18 months.
After being told by his engineering group that electrical properties of other materials were not a perfect match, he met with stamping suppliers who stamped parts from the cobalt strips for his company and asked for references for alternate sources of the strips. He found two alternate suppliers whose pricing was substantially lower than the existing source. He arranged for engineering to test product from one of the suppliers for possible use in new products.
Result: The existing sole-source supplier realized he had to collaborate more on price stability.
Are you a black belt negotiator? Tell us about one of your negotiation successes, and we'll print it so others can learn from your experience. Send it topteague@reedbusiness.com.
Copper Price Hike Projected
10/15/2009Base metals price runup may wilt this summer
06/09/2009Purchasing Hotline
04/04/2001Aluminum prices to remain low in 2010
11/10/2009Lead and zinc prices will strengthen
08/28/2007
Now Playing: 