September 6,
2006
Is
it Time for Global Standard Pricing on Components?
Do
the prices you pay for components change when you shift production from North
America to Asia? This is apparently a common and frustrating experience for
component buyers. A product that is designed in North America or Europe often
gets shifted to Asia for volume production. But if the price of the components
changes as the production shifts across the world, the economic validity of the
product might be in jeopardy.
A
number of large component buyers and distributors have started voicing concerns
about global pricing. Their request? They want the components industry to
standardize the price for the parts wherever they are purchased around the
world. “Sometimes we have trouble getting the same costs when production moves
around the globe,” says George Richter, VP of SSG product management for Arrow
Electronics Inc. in Melville, N.Y. “If a customer is bidding on my contract, I
want to be able to tell that customer they will have the same cost when they
move to Asia.”
Without
standardized global pricing, the cost of components can be a mystery as the
manufacturing of a product shifts to Asia. “Sometimes we have to wait until the
production actually moves to Asia before we get answers about pricing,” says
Richter. “So we have trouble giving our customer seamless, unified pricing. If
there was a consistent pricing strategy from the supplier, we could assure our
customer we can support the product with the same price.”
Richter
notes that he understands logistics costs may change from region to region, so
he is not concerned about suppliers making adjustments to cover shipping
expenses. “We recognize there will be logistics costs. We accept that,” says
Richter. “But other than shipping costs, there is not really a good reason for
price differences in different regions.” He notes that some suppliers are not
even aware of their pricing variances across different regions. “Our suppliers
may not realize the price differences in their own company.”
For
Richter, the problem is not with commodity components so much as it is with
parts that Arrow designs into products on behalf of its customers. “With
commodity products, you have a situation where the pricing is competitive,”
says Richter. “With differentiated products, we don’t see that there is a good
reason for price differences in different regions.”
Differentiated
components are often involved when a distributor assists a customer with
design, since the parts are unique to that specific product. In these situations,
the supplier typically offers individual pricing for the components involved.
“When we give the customer a technical solution and help with the design, the
supplier recognizes us by offering a unique cost for those components,” says
Richter. “But it becomes difficult if the price changes as the manufacturing
moves to Asia.”
Dispersed
manufacturing has become the norm in the manufacturing of electronic products.
So those buying electronic parts typically design and test their products in
North America or Europe with the ultimate intention of shifting the bulk of the
manufacturing to Asia. “When a customers starts working with us on the design
of a product, they often indicate they plan to transition their product to
Asia,” says Richter. “So we know right off that we will have to support our
counterpart in Asia. We start working with the suppliers over there. That’s
when we find that the pricing is different.”
A
number of large component suppliers have adjusted their cost structure to offer
standardized pricing around the world. “Some suppliers are already offering
standardized pricing,” says Richter. “It’s a small percentage that offers it,
but that percentage is growing.” Richter notes that Arrow asks its global
component suppliers for a set price for the components wherever they may be
needed around the world. “Once we know a supplier has a global footprint, we
start asking for a global price,” says Richter.
Direct
component buyers – those who buy directly from the component suppliers rather
than going through a distributor – are also calling for a set global price on
parts. “Direct buyers also want standardized global pricing,” says Richter.
“And some of our suppliers have a history of providing some of the largest OEMs
with standard prices around the world, whether it’s direct or through
distributors.”
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