Lytica’s own Chief Technology Officer, Ken Bradley, recently took some time to chat with Martin Harshberger on the Manufacturing Supply Chain CEOs podcast. They discussed everything from industry challenges to best practices on procurement and approaching negotiations to where he sees the future of supply chain resiliency.
As the former Chief Procurement Officer at Nortel Networks, Ken had one stark realization—no one could tell him what he should pay for a component. It was always an unclear, secretive space. Suppliers and staff would tell him he had good pricing, yet, he would send a circuit card out to large contract manufacturers and get back components with marked prices less than what he was paying.
He found that the industry at large didn’t have a cohesive view of what they should be paying for parts. Distributor sites would provide list prices, and suppliers would give quotes, but it didn’t reveal what your competitors and peers paid.
Ken brought in consultants to help him understand what he was doing, which cost hundreds of thousands of dollars, and they still couldn’t answer the question, “What should I be paying for this particular part?”
Ken goes on to explain why Lytica’s technology is so valuable. It’s able to estimate the prices of electronic components based on real customer pricing, helping companies characterize their spending and identify components that are outliers or not priced appropriately in the marketplace. Lytica’s analysis takes it down to the manufacturing part level to say, “Here’s what you’re paying for X, but you should be paying this, and here’s why…”
When asked why Lytica’s customers (Fortune 500 companies) can’t simply perform this analysis on their own data, Ken explained that salespeople understand what they’re paying, what they’ve historically been paying, and what their tolerance threshold is. Yet, too often, these larger companies have made their way through one acquisition or merger after another. In addition, they have many siloed systems they’re operating on with different nomenclature on part numbers, so it’s often unclear what they’re buying from one location to the next.
Ken says when systems aren’t talking to each other, it’s amazing the number of companies that don’t realize they’re buying the same thing, but it’s called something different in a separate location, and therefore paying 50 percent or more for the same component. Not to mention the supplier might know you’re buying the same thing in different locations, but they’re not telling you your volume is actually 3x what you think it is.
“You’re not able to have the same purchasing power and leverage when you don’t understand what you’re buying globally. Many distributor aggregators will tell you what’s out there, but they’re not telling you a more personalized market price – they’re telling you a generic list price. It’s like the car sticker price, but not what you’ll actually walk away paying for that car.”
– Ken Bradley
Lytica’s technology helps them understand on a global scale what they’re paying for parts that are similar or identical, as well as benchmark them with other customers to let them know where they stand in the market. The analysis tells them not what the list prices are but rather a better view of the overall marketplace through a much larger sample size.
The state of the industry has shown price increases week to week, but Ken says they seem to be stabilizing. What’s clear is that everyone suffered in some capacity, but some suffered at a higher pain point. A recent analysis from Lytica shows that the companies with better business processes and demand planning had nowhere near the spike that companies struggling in those areas faced. This reinforces the idea that good business practices not only get you a good price but help to maintain those prices over time because you’re looking at a better spend position through real, hard data instead of instincts.
“There is so much that influences the price you pay, and it all comes back to business processes. Things like attitudes, nurtured relationships, behavior towards a company, the amount of spend you have, how prepared you are for negotiations, and how good you are at demand forecasts. Some of the smaller companies are outperforming the bigger ones simply because they have better business processes.”
Ken believes manufacturing metrics are continuously improving, and the same thing could be done in procurement. It’s just an approach that’s been untapped. He says the future of the supply chain industry will be more G5, more electric vehicles, and more autonomous technologies, all of which the demand will skyrocket and people will reconsider whether the capacity they’re currently using should be applied to older products or whether it should be applied to higher margin products.
“Procurement people are numb. They need something to break and normalize. Lytica’s tools are designed to help them get answers with little effort so they can get back to what they do best.”
Listen to the episode in full, or learn more about how Lytica enhances the procurement process and builds better, stronger, and more resilient supply chains.