Mal said:
This is an excellent paper that addresses an issue that has been ongoing for my nearly 50 years of professional life.
Here is a brief overview of a situation that I just learned about recently but have seen many times in the past. The theme could be called “Beware the new buyer.”
A friend has a manufacturing company with several large customers. One customer buys a family of parts that total about $300,000 in revenue. All the parts are not the same in either volume or ease of manufacturing – the A, B, C variation.Does this experience sound familiar? The buyer's decision to separate the production of part A from parts B and C completely altered the pricing and profitability structure.
My friend had quoted an overall package of the several parts some years prior when a previous buyer was in place. In his case an easier to make and higher volume high part (part A) provided profit that offset some lower volume and difficult to make B and C parts.
Just recently a new buyer awarded the A part to another supplier based strictly on price leaving the B and C parts with my friend. Not only has he lost the profit on the A part, but the costs to make the B and C parts will rise.
He is challenging the decision and may be able to salvage some sort of compensating benefit.
Are there other ways customers apply pressure or shift the rules after the fact? We're still interested in your examples and insights, so keep them coming.
UPDATE
Read our white paper, Price Pressure: Is it Hurting Your Bottom Line?, to learn about the varied forms of pressure and practical tips for countering it to protect your profitability.
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