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Purch-lympics Entry #4 - Round #2
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Dylan Tao
Sourcing Buyer, Ontario, Canada
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"I have been buying some electronic components from a certain distributor for many years. The prices with this distributor are based on the negotiation between our company and the electronic components manufacturer due to the big EAU. Recently the manufacturer wanted to increase the prices for these components during the new contract negotiation with the reason and fact that raw material cost and operating cost have gone up a lot. Should we accept the reasonable price increase? I did a couple of things when I was still negotiating with the manufacturer, asked the manufacturer to come back with the cost structure and major cost drivers, worked with design engineer to check alternatives, and googled the distribution channels to understand the market price and availability. It turned out that one big distributor in the industry has a huge inventory for one of the components. As a try, I submitted a RFQ with my estimated annual usage to the distributor, and he came back the quote in the same day with a price which will give me 20 percent saving, compared to last year buy. Amazing result! I picked up the phone and called the sales rep to confirm the price. It is the correct price and I can place order to the distributor any time as long as I review and inform them the EAU quarterly and the EAU will not change significantly. How does that happen? I finally understand the background through later conversation with the sales rep that this distributor is a top distributor for the manufacturer because of huge annual buy and sales and is getting big discount from the component manufacturer, adding to that, our company has contract with this distributor and takes a decent discount from normal listed price because of our combined buying from the distributor. By multiplying the two volume-related discounts, I got the very low price. This is the result of leveraging volume in a creative way to achieve the lowest price. Eventually I got more than twenty thousands dollar savings for only one electronic component."
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