Sep 21 2015

NO HASSLE PRICING

Published by at 9:06 am under management,tooling

AN ASIDE: Have you noticed the car commercials on TV? They are about the hassles of bargaining with the dealership over the purchase price but now they offer a fixed price without having to haggle over anything! While it sounds like a deal, nothing really has changed but it does make buying a car less adversarial.

Why that little aside? Any Tier 1,2,3 etc. supplier will tell you even if they are the low bidder, the buyer will always withhold the PO unless they will drop the bid price even more. Even then a supplier can expect several phone calls/e-mails etc. demanding lower prices after production begins. The supplier can also expect a huge amount of pushback when they ask for a price increase because costs beyond their control (resin prices) eat up their very small profit margins.

OK, let’s blow up a few myths and let the secret out on how to survive in this jungle.

MYTH #1 – COST IS KING.
While repeated like a Mantra, it isn’t and never was. Anytime a customer pays expedited freight, or lower his quality standards by giving you a deviation (his excuse being he’s only doing this to keep his production line up) he’s just taught you if he had a continuous supply of acceptable – not perfect – product he’d be happy to pay your a little more, than go through the panic of a shortage.

MYTH #2 – THE CpK NIGHTMARE
CpK was first ‘invented’ as a means to look at tooling wear. It can best be described in terms of “How long will it take for the cutter to wear to the point we have to re-adjust the CNC program?”

Designers fell in love with a bastardized version of this thinking “what are the statistical odds of the ‘peg’ not fitting into the ‘hole’?” So they looked at the statistical odds out to Nine Sigmas and demanded that precision.

Yes, plastic varies in size do to post mold shrinkage. However, it’s stated as a design tolerance in the SPI Standards. Asking for more is silly. A CpK of 1.5 cuts your ‘acceptable tolerance’ in half. If it’s already specified at the SPI FINE tolerance, you cannot do any better in a production setting.

MYTH #3 – The JUST TO KEEP YOU HONEST Ploy
This is when the buyer/engineer withholds payment after the work is completed on the assumption that your work is inferior. Payment is withheld until the customer is sure the work is ‘up to snuff’.

He says it’s “Just to keep you honest.” If you are dishonest, why’d you get the work in the first place? This is like not paying the restaurant bill telling them you’ll pay in a few days if you don’t get food sick from the meal. Try that the next time you take your spouse to dinner. Tell me about your evening after the cops came.

This is simple bullying. If you are not paid, don’t ship parts or the mold. The “No Tickie No Washee” philosophy works well in this case.

A FEW TIPS IN SURVIVAL

DON’T NEGOCIATE – There’s an interesting concept in Game Theory. The three options you have in any game (transaction) are WIN, LOSE, or NOT PLAY. In the game of bidding, if you constantly get the job you worry that you’ve underbid the job or missed something critical. If you constantly lose when you bid, you either think your bid was used to hammer someone else, or the game is rigged. After a short time you always choose the third option – You DON’T PLAY by either ‘no bidding’ the job or never responding to the RFQ.

As described above, buyers will pay anything to keep their production lines up. If part of the ‘street theater’ is for the buyer to say “You can have the job if you lower the price by $5.00/1000” – inflate it by that much and then give it back. You didn’t LOSE, the BUYER reports he WINS.

If you can get past the street theater, tell the buyer your POLICY and follow it up in writing:

1. This is your firm first, last and final bid. You won’t lower it. But with your reputation of no rejects and on time delivery, he is saving money in he long run. If he wants cheap but will be pulling his hair out constantly to get product, go to someone else.

2. If the customer’s QC types want to see statistical analysis or inspection reports on each shipment it will cost $500/sheet of paper sent in.

3. Your bid price is based on material cost added to your invested labor, at the time you prepared the bid. Each time you get an order/release you’ll re-cost the job based on the current material price. You’ll only begin production based on the buyer’s approval of the new costing. If he doesn’t like it, he can have his tooling.

4. Your competitive advantage is how well your run your process. You will not share your set up guides, cycle time, inspection procedures or scrap rates.

5. You will not agree to nor accept ‘tasks’ for cost reductions unless the customer substantially financially assists in purchasing the automation equipment.

6. You can be threatened (‘lower the part price or we’ll source it elsewhere!’) once. The second time a threat arrives, you will immediately cease production and put the tools in the parking lot – naked on skids for the customer to move somewhere else: Weatherized, wrapped in plastic or crated, will have a separate charge. Storage will be $1,000 a week. Storage out of the weather will be $1,500/week. The tooling will only be released when all outstanding charges are settled and the payment is cleared. The customer further agrees not to file a Business Interruption law suit if the all payments are not immediately made.

7. If the customer pulls the tooling before you’ve recovered your startup R&D costs (let’s pretend it’s $10,000) he will be liable for the depreciated value spread over 6 month’s production.

8. You will ONLY send 10 parts per cavity for the customer’s QC inspection each time they request parts until the part/mold/process is approved. Once approved, they will pay for the tooling in full before you’ll produce any more product. If they need 20,000 parts for FDA approval or to build the assembly equipment, pay for the tool and you’d be happy to mold as many parts as they need!

NOTE: print this on page 2 of your quote. Send it in again before you begin production. The last piece of paper that changes hands before production begins, defines the rules.
This is your NO HASSLE pricing way of doing business. Think about it. Isn’t it simpler and easier than the Rug Bazaar school of doing business?

Yes, others will play the Old School game. There are buyers who brag about how wonderful it is to have their entire supplier base all so close to going out of business they can’t afford not to do business with them. REALLY? Keep track of the Old School guys. They probably have some neat stuff for sale when they go out of business!

Want drama? Have Teenage Daughters. If you want to make a profit and stay in business demand to be treated as a professional, make good products, and deliver on time. That’s all the buyer really wants.

Your Choice – it’s only money and your company you’re betting.

Bill Tobin
WJT Associates

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