OT: Conventional Wisdom - Product Pricing

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If the customers are big and you are small, you can easily determine who's the dog and who's the tail. You WILL be wagged at the whim of the dog. I've had people tell me that they get paid by big companies in 90 days, if they're lucky, no matter what the purchase order says. "You don't like it, go sell to someone else."

You don't say what the part is, how critical it is to the customer, JIT delivery or stocked by them? Failure modes? Lotsa variables.

You can stay closely coupled to a local machine shop and probably get what you ordered...maybe...unless they hire a new guy.

Having something molded far away can be a nightmare. I once had to recall an entire run of instruments because the vendor farmed it out to a sub who didn't dry the plastic adequately before molding the case. Hit it with a screwdriver and it shattered. All the process evaluation in the world doesn't help if they subcontract it without telling you.

I can tell you horror stories until you get tired of listening.

It's IMPORTANT to negotiate in writing with the RIGHT person. The person placing the order may not be the right person. You need agreement, in writing, from the person who SIGNS THE CHECKS. It's unlikely, she'll deviate from corporate policy.

The only thing you can count on is change. The people you negotiate with up front get hit by cars, get new jobs, get downsized.... The new guy may not feel bound by agreements made with his predecessor.

I once had a power supply designed by a local company. They couldn't make it reliable, so I fired them. Purchasing found a new vendor 400 miles away. The old vendor fired the designer. The new company needed a designer for my design. Guess who they hired!!! I didn't learn that until the new design showed up looking exactly like the old design. What's the probability of that happening?

STUFF HAPPENS! And it all takes resources to fix.

An interesting way to look at it is to do a discount cash flow analysis. See how the break-even point changes with small changes in development schedule, cost, price, volumes, interest rates... Done realistically, that weeds out many an ill-conceived project.

What are you gonna do when a buyer decides to pay in 90 days instead of up front. Sounds simple to say, "I'll not build the stuff." It's very easy to convince yourself that it'll all work out because everyone is in agreement, it'll just take a few more days to get it thru the system. If we don't start the build NOW, we'll miss the schedule window at the vendor or have to pay expediting costs to meet delivery schedules...RIGHT!!! People routinely make promises they're not empowered to keep. The little guy, YOU, gets left holding the bag (of parts).

Stuff rarely takes less resource than planned. You need a cushion built into the price. You're headed in the opposite direction.

Having an existing business to share overhead is a plus. But it's also more assets to be seized if it all goes south.

Why, yes, I AM a pessimist.