BOM Costing Review – Confidential Case Study
Better Sourcing = Better Business
Our (NDA-covered) client produces a finished goods, “tablet-like” product that is sold direct-to-consumer (DTC) via e-commerce and the company's own website. Over the past two years, the client has experienced a 40% increase in costings, even though their purchases had more than doubled from 2019 to 2021.
Our goal was to determine market trendlines to validate or invalidate the justifications for the price increases, and to assess current market conditions to provide an expert opinion as to short, middle, and longer-term trends that would directly affect our client's product costs. Additionally, we sought to specifically examine the main BOM components of their product in order to provide an outlook on forward pricing within the market environment.
After an extensive BOM review and document discovery, bluesalve partners interviewed multiple senior level executives from component manufacturers and analysts (LCD, WiFi, processor, etc.). We received quotes from three alternate contract manufacturers (CMs) and performed a competitive cost analysis of a “like" finished-goods product. We delivered a detailed report summarizing our findings.
Our work identified that the client's key components were, in reality, experiencing only a 5 to 10% price increase in the market, at maximum. We also confirmed that by Q3 or Q4 2022, those components were forecasted by the manufacturers to revert to normal pricing. We were also able to identify CMs and off-the-shelf, finished goods products that (with some customization) could be purchased for less than the price that our client originally paid back in 2019.
Our recommendation to the client was to use this information to re-negotiate prices with the current source, and if that was not ultimately successful, begin the process of second sourcing.
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