Optimum Design Associates Blog
hero-flat.jpg

Should I Tell My Contract Manufacturers What Others Have Quoted?

yes_or_no.jpg

If they deserve it, yes. If you buy only on the basis of price, then no.

Let’s start with when you should not disclose competitive information. If you are buying a product based solely on the lowest bid, and I mean SOLELY on the lowest price, it would not generally be considered ethical to disclose competitive pricing. This type of bidding is most common in commodity purchasing where there is no discernable difference between suppliers.

But if there IS a discernable difference between suppliers (which there always is in contract manufacturing), and an existing supplier is performing well, they deserve to retain the business provided they remain competitive. Because price quotes are estimates, they will naturally vary by +/-5 percent (see our article on CM price variance here). If an incumbent supplier quotes within +/-5 percent of the average quote (excluding outliers), they should be guided to adjust their quote, which most CMs are happy to do. If the OEM does not provide this feedback, the alternative is to pay a higher price to stay with the incumbent, or to switch suppliers based only on the inevitable small movements in quoted prices. OEMs who switch businesses based solely on small changes in quoted price are highly undesirable customers, and quality CMs will eventually rotate such customers out of their business.

4 Ways CMs Should Help Cost Reduction Download

If you are quoting new business to a group of CMs that are all potentially new partners, you should guide a CM on price if they offer intangible benefits that are important. An extreme example would be a local supplier vs. a Chinese supplier. Less-extreme examples would be a supplier who has experience building products similar to yours or experience with your industry, a supplier who scored higher on your audit, a supplier who offers stronger technical or engineering support, a supplier who you believe has better quality practices, etc.

Another way of looking at this issue is to consider all prices within +/-5 percent of a cluster to be essentially equal because they all fall within the accuracy tolerance of price estimating. Within this tolerance, you can regard all the prices as being equal and are therefore disclosing very little by nudging preferred bidders toward the mean.

One further note: We have used the term “price guidance” to describe best practices. We do not advocate the wholesale disclosure of one CM’s quotation to another CM. We do advocate that as part of normal price/contract negotiations, it is ethical for the OEM to use a range of quotes to establish a market price they are willing to pay, and at the proper time in the negotiation, to disclose that market price to CMs who deserve preferred consideration.  

Further Reading: 5 Rules To Finding The Right Sized Contract Manufacturer