"Bowled over by sourcing constraints"
Purchasing's smartest negotiators move from conflict to collaboration fast. Match your wits against these pros. Guess their strategy. Then, read what they really did at purchasing.com/negotiations.
By Staff -- Purchasing, 1/17/2008 2:00:00 AM
As a purchasing manager for K-Byte, a subcontractor that supplied pinsetters and automatic scorekeepers to AMF's bowling division, Bill Melucci (now with Dominion Technologies) was confronted with a challenge by K-Byte's president: Find a way to cut costs so they could make a profit on the business. At the time, they were barely breaking even. Melucci discovered that one semiconductor populated the main circuit board 16 times at a total cost that equated to 20% of the total cost of the assembly. He called the manufacturer of the semiconductor to try to purchase it direct. The manufacturer said it sold that component only through distribution. He then contacted six distributors, who all quoted the same price.
Problem: The distributors all sole-sourced the component from the same semiconductor manufacturer, who dictated and monitored the price. There was no other component to replace it, so no redesign was possible. And, AMF was seeking a price reduction from K-Byte. Melucci had to find a way to get distributors to cut the cost. See Purchasing.com for the solution.
Possible Solutions: Find other items to cut costs; give the contract to the distributor that offered an end-of-the-year rebate; live with the low-margin job. Seewww.purchasing.com/negotiationsfor the solution.
Solution: Melucci contacted the distributors again and asked what discount would be given if he paid the invoices in 10 days or less. After several negotiations, he was able to secure 13% discount if paid in 10 days. That bundled with negotiations on other components resulted in the project becoming the highest profit margin job for the company.
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 to pteague@reedbusiness.com.
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