Why my head hurts...

[LeRoux Strydom]

A local client of mine in the automotive OEM industry (read blue oval) does this to us all the time: threaten to buy complete diecast parts from India or China at less than the cost of the master alloy (aluminium) I supply to the diecaster who produces their cylinder heads & manifolds.

We call their bluff all the time.

The last time they outsourced a part (oil pan cover) to China, their failure rate (leaks & misaligned parts) went up substantially. They came back to the local supplier, tail between the legs, after being sued (and lost) for breach of contract by the local guy. I still get to supply the master alloy to the local supplier.

You have to sell your strengths and advantages of being a local supplier. These OEM's procurement staff all go to the same courses and try to pull the same stunts. Once you understand how to sell your benefits, it becomes easier. You have to have the ability to ride out the dead time while they learn the hard way about supply from countries with $10/day labour rates, though.

Good luck.

[lendaddy]

Originally Posted by legion

Hey, Len,

Can you take advantage of the weak dollar and sell some of your superior machined goods to Europe?

Actually I contacted a mill in Canada using this approach and the feedback was good.

[lendaddy]

Lots of good stuff in this, thanks guys. Now back to that RFQ:

[911Rob]

Originally Posted by LeRoux Strydom

A local client of mine in the automotive OEM industry (read blue oval) does this to us all the time: threaten to buy complete diecast parts from India or China at less than the cost of the master alloy (aluminium) I supply to the diecaster who produces their cylinder heads & manifolds.

We call their bluff all the time.

The last time they outsourced a part (oil pan cover) to China, their failure rate (leaks & misaligned parts) went up substantially. They came back to the local supplier, tail between the legs, after being sued (and lost) for breach of contract by the local guy. I still get to supply the master alloy to the local supplier.

You have to sell your strengths and advantages of being a local supplier. These OEM's procurement staff all go to the same courses and try to pull the same stunts. Once you understand how to sell your benefits, it becomes easier. You have to have the ability to ride out the dead time while they learn the hard way about supply from countries with $10/day labour rates, though.

Good luck.

NOW that's what I'm talking about baby! Somebody that knows what the Fv*k they're talking about! Great thread, lots of good info here!

Good Luck Len, keep us posted.

Funny 'eh, the harder you work, the luckier you get?

[morganb]

Lendaddy,

Talk to your suppliers, maybe they have some excess capacity and can sell you the raw material a little cheaper and then this can mean your margin on the resst of sales is more. Also check fully the specification, a lot of companies overseas (not all but some) will push for a cheaper raw material. See if you and your suppliers can come up with some alternative options on the material specs that may help you with the cost. Good Luck

[Jeff Alton]

We see this in wheels as well. Make me think the raw material being used in not what they say it is. Kinda like re-grading lumber....

Cheers

[lendaddy]

Originally Posted by Jeff Alton

We see this in wheels as well. Make me think the raw material being used in not what they say it is. Kinda like re-grading lumber....

Cheers

Yes this happens, I've heard of this mainly in tool steel. However the main problem is government subsidization. In order to give their fledgling enterprises a foot hold in the market the government is literally eating the losses for them.

This is happening in many commodity driven industries. Obviously you can't do it long term but in the short term the competition is dying.

[LeRoux Strydom]

Originally Posted by lendaddy

Yes this happens, I've heard of this mainly in tool steel. However the main problem is government subsidization. In order to give their fledgling enterprises a foot hold in the market the government is literally eating the losses for them.

This is happening in many commodity driven industries. Obviously you can't do it long term but in the short term the competition is dying.

Most often, countries like India & China have restrictions on raw materials exports, and import duties on product imports. So basically you cannot buy their raw materials, but they can buy yours unrestricted. You can't sell your product without adding the cost of the duties, but they can sell freely in your country.

Those of us playing by the WTO rules continue to suck on the hind tit.

[lendaddy]

Originally Posted by LeRoux Strydom

Most often, countries like India & China have restrictions on raw materials exports, and import duties on product imports. So basically you cannot buy their raw materials, but they can buy yours unrestricted. You can't sell your product without adding the cost of the duties, but they can sell freely in your country.

Those of us playing by the WTO rules continue to suck on the hind tit.

Recently the paper industry "won" sanctions against the Chinese via the WTO. Tariffs were added to compensate for the dumping. It was considered a major victory and ground breaking until the Chinese just upped the kickbacks to their mfgs and their prices went unchanged in our market.
(I believe I heard that the original move by the WTO was reversed recently also)

The move to make in paper now is to team with the Chinese. Their lack of environmental standards and government backing make them unbeatable. South America is still in the game though.

[Superman]

Michael Porter, a Harvard instructor, wrote some books and articles that are considered revolutionary. I believe his first two books were Competitive Strategy and Competitive Advantage. They are generic, but important. I was taking a class that used Competitive Advantage when one of my classmates said he and his boss went to visit Mr. Porter. They paid $10K for most of an hour with him. I asked him if it was worth it, and he said it definitely was.

Porter says there is one "cost" competitor in every market, and only one. McDonalds is the cost leader in that industry. But there can be many "differentiated" competitors. Wendy's would be an example of that. He would suggest you consider the Value Chains of your prospective customers carefully and in detail. He would suggest you look to either lower their cost, or improve their performance (your customers). Either or both of these goals can be achieved without pursuing a 'cost' strategy.

It's the same thing these other guys are saying. Quicker response. More reliable product. More reliable delivery. Inventory is expensive. You could probably reduce the customer's inventory by proposing a delivery schedule that is 'just in time,' etc. That sort of stuff. Inventory cost can be calculated and, if ignored, is an added expense when you're taking delivery of a bazillion widgets from India. And what if they do not meet spec? The cost of your customer disappointing his customers might be unbearably frightening to your customer.

[Porsche_monkey]

So you pay $15 per hour, the guys get two (paid) ten minute breaks, that's 1/3 of an hour or $5 just for breaks.

Your Chinese competitor gets 10+ hours labour for what you pay a guy to sit down.

Anybody think they can be competetive on anything with labour and reasonable shipping costs? Say a small light aluminum product that won't rust on the way here?

Differentiate or die. It's that simple. That's the reality of todays economy.