Marketpulse maps fluctuating component prices
Tony Jessop, UK director of enterprise sales at Partminer, examines how companies can mitigate the effects of rising raw materials and raw labour costs.
Buyers know the price and availability of electronic components are volatile but should brace themselves for more price instability and greater sourcing difficulties in the near future.
It is estimated 70 per cent of all electronic components flow through the Asian markets.
The fragmented negotiation-based distribution model in this region is responsible for driving a price chasm between east and west, fuelling global volatility.
Rising raw material costs are impacting the prices of capacitors, resistors and other components.
Combined with rising labour rates, particularly in China, and unstable currency exchange rates, sourcing components has become more complex.
The main factor influencing component pricing is metal.
The costs of palladium, copper, gold, nickel, silver, tin and other materials for manufacturing electronic components are rising, in many cases by hundreds of per cent a year.
Large swings in the price of oil, needed for plastics and transportation, adds another variable.
Labour rates in the east are also increasing as they align closer to those in western economies.
Well informed industry buyers and component distributors are less prepared to accept these increases, especially if they know supply exceeds demand.
As a result, most price increases occur on a case-by-case basis, making it difficult for buyers to ascertain if they are getting components at the best market price.
Mature components are most at risk of hikes in prices as manufacturers are unable to offset rising raw material and labour costs with improvements in technology or increases in volume.
This leaves manufacturers of long life products, such as those in aerospace and defence or transportation, at greater threat of increased costs as it is difficult for them to pass these price increases on to their customers.
Many OEMs use contract manufacturers in their supply chain.
Large contract manufacturers wield great power in negotiations with component suppliers, which often translates into reduced pricing.
When a contract manufacturer gets a low bill-of-material (BOM) pricing, it gives them an opportunity to mark up the BOM to its customers' expectations, increasing margins.
To overcome this, large OEMs will often negotiate their own prices with the component suppliers and then use price masking to ensure the OEM and not the contract manufacturer benefits from any component-price changes.
Smaller OEMs do not have this clout and without access to market knowledge would not be aware of such pricing.
The ability of OEMs and contract manufacturers to source components and access dynamic buy and sell prices is a challenge that must be grasped if they are to remain competitive.
Partminer undertook work with its customers (which include OEMs and contract manufacturers) that frequently identified savings of more than 50 per cent between the expected price of components against what they could actually be bought for in the open market.
The key to identifying these significant savings is the ability to access huge amounts of real-time trading information using modern communication infrastructures.
Partminer's Marketpulse information platform is a dynamic, market-driven database with up-to-date information from millions of transactions, data feeds and other pricing events from more than 11,000 sources worldwide.
The price history is updated from more than 200 million lines (more than USD20bn) of annual inventory.
Gathering price and availability information from more than 11,000 international suppliers is the only way to provide buyers with an accurate market perspective and range of choice.
To understand this fragmented market, Partminer has about 200 strategic sourcing professionals in China, India, Europe and the Americas that maintain contact with supply sources through RFQs, telephone verification and face-to-face communication.
Another source of real-time price information is Partminer's own customers, the trading data of which is anonymously added to the database.
As a hosted platform, all companies can submit BOMs from anywhere in the world for analysis, including cross referencing of parts, identifying alternatives, understanding where excess inventory exists and the latest buy-and-sell component prices.
Drilling down by component reveals recent transactions, available lots and pricing by source (franchise, independent and excess).
Capturing this information over time builds knowledge of trend movements in the price and available quantities of components, providing the informed buyer with strategic sourcing capabilities.
This service helps businesses locate scarce components across the globe and identify alternative sources and engineering replacements.
This leads to better design and supply decisions and leverage to negotiate a better price with suppliers.
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