Market Watch

Like Bryant’s unenviable scenario, strategic procurement organizations tasked to negotiate the pricing of critical semiconductor components for their company are constantly in some sort of planning exercise one way or another, especially as they navigate the choppy waters of pricing with their supply-chain partners.

This is where IHS iSuppli’s Component Price Tracking (CPT) tool can come in. Using CPT’s meticulous forecasts and unmatched insights into current market conditions and pricing, firms can bring this critical tool to the negotiating table to achieve lower procurement and acquisition costs when dealing with their semiconductor suppliers.

In the past, many companies as part of their planning for negotiations with a supplier would set a target price for the critical components listed on their bill of materials (BOM), based on historical purchasing information that included prices paid for specific volumes from various supply-chain partners. The companies would then dial down those prices by 5 to 7 percent in general when they went to negotia- tions with suppliers—and then stick to that price with the slender hope that their suppliers agree. Such a method obviously provides no clear foundation for negotiating realistic prices during thorny negotiations, especially because firms must tread a fine line—one that allows them to lower their total cost of acquisition while still presenting a price palatable to the supplier.

Best-in-class procurement organizations are keenly aware of the realm of continuous price adjustments in which semiconductor manufacturers operate. The unpredictable swings of the pricing pendulum have to do with variable production costs and yield rates that contribute to shifting price levels for standard semiconductors. In addition, factors like market supply, demand and current inventory levels play powerful roles in establishing prices.

Regardless of price stability—or its lack thereof—most semiconductor manufacturers are looking for a competitive advantage to cut costs, even as they strive to develop closer relationships with their customers and create differentiated semiconductors that could be sold at a premium price. For instance, integrated circuits readily available from suppliers worldwide would be treated as commodity products by most buyers. Thus, any steps that manufacturers can take to reduce their own production costs, build stronger relationships with customers or create unique products could protect them from the price wars usually associated with commodity merchandise.

Here, again, is where CPT can be valuable, especially in an ecosystem as fragile and fluid as that of the semiconductor industry. Unless a company has the bandwidth to support the research, planning and scope of analysis required to keep up with the market, the firm is likely to end up making critical decisions that have significant impact on their bottom line based simply on the best available information at the time. CPT prevents this veritable short circuit, providing critical knowledge that not only lowers the costs for suppliers but also helps them gain the upper hand in pricing negotiations.

What CPT can do for you
The IHS iSuppli Component Price Tracker (CPT) tool was launched to develop and standardize methods for uniform application to a range of strategic, commodity-type components. In a significant upgrade, CPT became available starting January 1 via TRAX™, an innovative analytical tool that lets clients create custom views and drill down into the data in a fraction of the time it takes to manipulate static Excel files.

Populated by data from IHS analyst-driven research, the CPT monthly service easily shows clients the big picture, providing current market pricing information as well as price forecasts for the most popular, high-volume, multisourced commodity-type components in the three major geographic regions of North America, Europe and Asia.

With CPT, customers will be able to obtain valuable information on market pricing and forecast visibility for components, enjoying maximum flexibility for quickly reviewing pricing trends in various formats at the part description or commodity group level.