Small electronics company wants to compete on price with huge Electronics co's

[ocset]

Hi,

At our small company in UK, we  try to design LED drivers which can  compete on price with LED drivers which are already available ‘offtheshelf’. The competitor products to our own, are designed and manufactured by huge electronics corporations.  Many would say we are fools to even attempt this..

However, our  contractor believes that by searching through the website “findchips.com”, we can find cheaper replacements for the components in our LED driver, and in this way, we will be able to compete  on price  with the  huge electronics corporations. This is because he tells us that there is a “free market”  (equally accessible to all) in electronics components and that this is equally available to all. He says that in order to compete on price, all we have to do is search through finchips.com and find the cheapest components.
..Though I think there is some truth in this, it only works up to a point. –Because it is just a fact that the huge electronics corporations can always get components cheaper than a small company (-because they have “relationships” with distributors and semiconductor fabrication plants that small companies cannot have).

In any case, a particular component that is cheap on “findchips.com” in one week, may be more expensive than others  in a few weeks time.

Do you agree?....ie, that   firstly the pricing on findchips.com is not  absolutely  representative of the actual price of any given component at any given time……the price of individual components is “up and down” with time.

Also, even if we do find the cheapest components on findchips.com, these prices are still going to be well  above  the prices that the huge electronics corporations are paying for their electronics components. Do you agree?

The following are some of the components in our BOM that our contractor has pinpointed as being “expensive” on findchips.com, and has asked us to find alternatives…..

I mean, one of these components is a simple radial inductor  by Panasonic (ELC09D221)…I tend to think that finding a cheaper alternative component to this one is a waste of time…because in a few months time, the ELC09D221 will be cheaper  than  whichever alternative we find.



ELC09D221 inductor datasheet:
http://www.farnell.com/datasheets/2245397.pdf?_ga=2.152052733.534014099.1537016082-711356958.1531003040&_gac=1.262824376.1534088552.EAIaIQobChMIhYuVlu3n3AIVBLTtCh1WOw0UEAAYASAAEgIsnfD_BwE

7448640415 Common mode choke  datasheet:-
http://katalog.we-online.com/pbs/datasheet/7448640415.pdf

IPA90R800C3 TO220 MOSFET:-
https://www.infineon.com/dgdl/Infineon-IPA90R800C3-DS-v01_00-en.pdf?fileId=db3a30431b3e89eb011b8cd8a0b90fc6

100nF, 1812, 1kV, X7R capacitor   (C1812C104KDRACAUTO)
https://uk.farnell.com/kemet/c1812c104kdracauto/cap-0-1-f-1-kv-10-x7r-1812/dp/2834518RL

STTH3010 datasheet
https://www.st.com/resource/en/datasheet/stth3010.pdf

MCP65R46T comparator with reference
http://ww1.microchip.com/downloads/en/DeviceDoc/22269B.pdf

[doobedoobedo]

https://www.taobao.com

 

[Benta]

Congratulations! You've just found a way to close your company!
Using dodgy components from dodgy sources is the certain way to run into quality problems. And when that happens, you won't have customers anymore, they've all run away.

[mzzj]

Why I had the feeling that this thread is started by "treez" before even opening it? 

But this time I actually agree with treez, sounds generally as a bad idea.
If you get enough big volume for the inductors it's probably worth checking what the chinese manufacturers can cook for you..

[Ice-Tea]

Just what exactly is your current strategy in terms of component sourcing? I hope it's not 'find the cheapest' on farnell for anything over a hundred pieces?

I have no experience with findchips but it seems to mostly lead to reputable distributors like Arrow, Avnet, etc? Nothing wrong with that (if you stick to the reputable ones) but it also begs the question: why is your BOM not already with them??

Aside from cherry picking the best offers from the usual suspects, there are a few manufacturers that try to cut out the middle man as much as possible and approach the customer directly with a portefollio that is as wide as possible. Würth is a good example. While their Farnell etc prices are ridiculous, their negotiated prices are quite decent.

[ogden]

I mean, one of these components is a simple radial inductor  by Panasonic (ELC09D221)…I tend to think that finding a cheaper alternative component to this one is a waste of time…because in a few months time, the ELC09D221 will be cheaper  than  whichever alternative we find.

Most likely it will become more expensive - because its through hole component that's already expensive today. Sorry to say, but only [careless] designer would put such into low cost (!!!) product. I feel that TO220 transistor is even worse. Where and how do you assemble your low cost led driver? Using slave labor is no good those days

[Brumby]

What males you think the "big boys" don't have access to the same pricing opportunities?  You can bet your boots they do - AND will have better negotiating power from the volume they will be able to purchase.  You haven't got a hope, I'm sorry.

Even then... IF you can get the components at a kick ass price:

Where and how do you assemble your low cost led driver? Using slave labor is no good those days

To be honest, it sounds to me like your "contractor" is blowing smoke up your arse in order to stay on as long as they can so as to suck as much out of your budget as possible.  There are some "consultants" out there that haven't got a decent clue about anything and couldn't hold down a permanent job if they tried - so they just take on stints where they can get in, take the money and leave before things turn to crap.

I may be wrong ... but that's the "vibe" I'm getting.

[floobydust]

I do laugh when people think the component prices are the key to being competitive.

PCB assembly, manufacturing labour, enclosure mechanical, QA, and warranty is a huge part of the total cost.

Most companies have "fat" sales and marketing and executives, so a high margin is really the problem.
Meh, let's push the engineers to save $5 with cheapola parts that backfire into warranty claims- but the accounting numbers will not show this long path, so it still looks good.
Some companies are actually losing money selling their products and don't even realize it.

If the component prices were miraculously 1/2 of what they are now, do the pie-chart and see what the product will now cost. You will find it's not worth a lot of sweat, compared to your labour costs on the production floor.

[Rerouter]

Competing with larger companies is the easy part, there size gives them much more influence and power, but greatly slows down there development time and how quickly they can change things around.

E.g. to get there whole supply chain ready to knock out 1 million units will take months of coordination, this is after the design is finalized, the molds for the enclosures routed and shipped, and the assembly lines optimized.

VS you, Pick non custom housings, and parts common across many suppliers, and you can likely punch out 1000 units in 3 weeks, and if people ask for new features, it would again take you that 3 weeks or less to spin out a new model.

So I would approach it from that angle, address your customers needs, e.g. is the competitors product to large an bulky, would they prefer another interface? is there something about the competitors product that makes developing on it painful?

Atleast that is how I make my money, having all the idiot checks in place well ahead, and talking shop to the users to get an actual feel for how there using them, and what they dream of.

[Brumby]

Yes.  Small, nimble and responsive will give you an advantage over the big guys ... and cost is not going to be one of your prime metrics.

[T3sl4co1l]

Competing with larger companies is the easy part, there size gives them much more influence and power, but greatly slows down there development time and how quickly they can change things around.

I've been working with a large power electronics company, on a project that's been in development for several years now.  Design seemed to be going okay within this small department, primarily by one employee -- who has since left.  The project manager is now responsible, and as he can't do it himself, we've been called on for design assistance.  At first, we were supposed to help with programming, then it became tweaking the circuit for production-readiness or other small fixes.  Well, we then discovered that, the sensors originally selected for the project, simply cannot give the performance expected, and no one did the analysis to figure this out.  The reason is partly because E&M fields are hard, but also partly because the original proposals just didn't envision the use-cases where those fields will be a problem.  So, while they followed internal procedures to a tee, but the project never touched anyone with enough breadth of knowledge to have that insight, and as a result, it's well below the required spec, and well behind schedule.

So yeah, being agile, unburdened with internal procedure, you can* deliver a product much faster, and potentially better, than a large company can.  Maybe cheaper, too.

*Can, not will.  There is always opportunity to fail; it takes commitment and excellence from the whole team to succeed, of course!

Tim

[ocset]

Thanks, i think with our case, the huge celectronics corporations have already done the work, and already produced their led drivers, and have them on the shelves ready to buy...and we are now choosing to try and compete with these ready-to-sell products (LED drivers).
What we are making is the same spec as what they have already produced.  ..What we are doing  just doesnt add up.

[MK14]

What we are doing  just doesnt add up.

If something is not profitable and/or worthwhile to the company for other reasons. It should not produce and sell stuff in that market.
If a company does not stop producing unprofitable items. Eventually it can run out of resources (money), and go bankrupt.

E.g. Maplins

[ocset]

If something is not profitable and/or worthwhile to the company for other reasons. It should not produce and sell stuff in that market.
If a company does not stop producing unprofitable items. Eventually it can run out of resources (money), and go bankrupt.

Thanks very true, i think there is a case though, (at least in UK) where a company that gets minted importing stuff in from the Far East,  must make "something" in-house,  in order to masquerade as a "designer/manufacturer", because when you have that status, you are then more likely to be chosen by customers who will buy stuff from you that you have imported fromt  the Far East.

So its all about "positioning" your company to be able to make those big "middle man" Far Eastern import contracts. Its all a clever  pretence.

Its also about the middle men being able to knock the Chinese further down in price, by saying to the Chinese…either you sell it cheaper or we’ll just design/manufacture it ourselves…and we have that capability…blah blah blah….just look at “these” products, that we made all by ourselves already…...you don’t knock the price down, and we’ll just make it ourselves.

[m98]

Wait, so you only manufacture LED drivers because then you'll attract more customers and have better negotiation power for your main business? Then why do you even need a profit margin on those? Just sell them for competitive pricing, keep the loss to a minimum and call it marketing expenses.

[MK14]

Thanks very true, i think there is a case though, (at least in UK) where a company that gets minted importing stuff in from the Far East,
...cut..................

Tesco's are talking about doing something similar, right now.
They are planning on introducing a new range (Brand) of shops. So that they can compete with Aldi and Lidl.

They see it as a win win situation. Because they either make lots of profit from the new shops, or don't (if no profit, it at least hinders the competition (Aldi/Lidl), from taking too much business away from the Tesco brand).

E.g. Intel might produce some new cpus. Not to make money necessarily, but to prevent AMD from successfully making money from AMD cpus.
Microsoft is blamed for doing this, to stop other companies from releasing competing operating systems. Hence maintaining Microsofts monopoly on the software market.

[Kjelt]

Forget it, let me tell you a true story.
The amount of drivers sold each period is predicted and the amount of components ordered a year ahead.
One of the drivers were sold 150% so production had to ramp up.
One of the preferred manufacturers could/would not sell a critical ic, our quota was all we could get.
So the hw eng dept got the task to pick an ic from the alternative manufacturers and use that.
It was a well known chinese manufacturer. The ic on paper would be equal but needed different external components, usually no problem.
During testing it was found out the ic would be unstable at high temperatures  eeding more expensive npo caps, extra compensation circuit etc etc.
In the end we just burned half year engineering and still had not the same quality.
So in short it is not about price for critical components and you can be assured that the a-manufacturers play the cost down game as well.

[rstofer]

If you want to play in the big leagues, you need to make the rules.

When Jack Welch ran GE, he had a rule for the business segments:  If they weren't number one in the market or number two with a chance of becoming number one, he sold off the business.  Only the leader can set the price.  GE sold a lot of perfectly good businesses that simply had no chance of becoming number one in their market.

The only way a small company can compete with a large company is by having much less overhead.  The small company can't get economy of scale in purchasing or manufacturing so the only place left to cut costs to hit the price point is to dump overhead.  This also means that R&D will probably not exist.  The small company will simply be a "me too" business.

It is counterproductive to use cheaper components and take the hit on warranty and reputation.

[ocset]

Thanks, i'd add to that that the small  general  lighting company, if it wants to survive,  must just start importing direct from China and just be a "middle man" importer of Chinese goods.

[MK14]

Thanks, i'd add to that that the small  general  lighting company, if it wants to survive,  must just start importing direct from China and just be a "middle man" importer of Chinese goods.

But then, sooner or later.
The Chinese may get more aggressive (in the business market), and utilise the fact that they know (trade secrets), how to make, reasonable (or good) quality lighting products.
So the Chinese, may decide to grab the full 100% of the profit. By opening up sales distribution agencies in the UK (and other places), who can sell direct WITHOUT involving the middlemen.

I.e. You could be without a job, along with the rest of your fellow workers.

[ocset]

thanks, yes, i agree with you, and this is why  the UK must abide by the recommendations of the "Revive British Industry" campaign...

[MK14]

thanks, yes, i agree with you, and this is why  the UK must abide by the recommendations of the "Revive British Industry" campaign...
https://massey276.wixsite.com/revive

WARNING: This post has been created in a light-hearted (semi-joking style), and only vaguely, if at all, represents reality. Hopefully the jist is still partly correct.

People sort of have to accept, lots of hard business facts and realities.

The 1950s has been and gone, and probably is not going to return, anytime soon.

For example, let's say I had an identical twin brother, and we both were as good (or bad), at high tech stuff, as each other. So we jointly, invent, this wondrous new type of LED lighting system, which is assembled out of normal electronic parts, but otherwise is a great invention.

We each have £100,000 in cash (bank loan), to start up a new business.

So, I start one such business in the UK, and my identical twin brother starts up a completely separate company in the best Electronics part of China for doing stuff like that. The Chinese government agree to this business, with no strings attached. (unrealistic, I know, they will want approx 49%/51% of the company and/or significant Chinese involvement, plus they will want its IP). N.B. All figures very approximate, and NOT 100% realistic, I know!

So, in the UK, I would have to pay, something like £1 for a suitable set of transistors for the device.

My Chinese identical twin only has to pay £0.05 for the set of transistors.

I have to pay an additional £5 for the device to be manufactured in the UK.
My twin only needs to pay £0.25 for quality Chinese manufacturing (he found a good quality factory there).

I have to pay £3 import and other taxes, he only has to pay £0.10 taxes and fees.

So the LED lamp, made in the UK, costs £20 per lamp.
But my twin brothers lamp, in China costs £1 per lamp.

We both sell the lamps mail order.
I need to charge £50 to the UK customers. Cost breakdown, £20 per LED lamp, £10 profit, £10 delivery charge, £10 VAT. Total = around £50.

My identical Chinese twin brother needs to charge £3 via ebay, to deliver them to the UK. Doesn't pay UK taxes, such as VAT. Should, but in practice I think Chinese sellers get away with it.

At £50 final sale price, I manage to sell 2 LED lights. So I received £100. Made £20 profit. Had to pay £10,000 to hire the unit and busines tax rates and Electricity bill.
Total profit = -£9,980 over 12 months.

The Chinese company, my identical twin brother, sells 100,000 of the LED lights, £3 each.
Makes £1 x 100,00 = £100,000 profit.
After paying £500 in Chinese taxes and £0 in UK taxes/VAT, and £200 for the rental of a unit in China.
Total profit = £99,300

So a question.
Which one of the twins, is driving round in a shiny, Red  Ferrari, with a nice wife/girlfriend, while driving to their nice luxury home, in China ?

And which one is being man-handled by court bailiffs, over £9,980 they owe to the bank. Sleeping rough and getting very cold and wet, in the British weather ?

WARNING: This post has been created in a light-hearted (semi-joking style), and only vaguely, if at all, represents reality. Hopefully the jist is still partly correct.

[Kjelt]

That is why you let an italian guy design your lamp, built it with your hands and out of the most luxury expensive materials you can get your hand of, sell maximum eight per design @ £79000.- and don't forget to call it exclusive art and lay the emphasis on only 8 pieces made and lie that half are already sold to make those people with too much money make haste for ordering.

[floobydust]

If you want to play in the big leagues, you need to make the rules.

When Jack Welch ran GE, he had a rule for the business segments:  If they weren't number one in the market or number two with a chance of becoming number one, he sold off the business.  Only the leader can set the price.  ...

Instead of growing or developing the business, including (first) doing a decent business plan - this is the corporate cancer: demand the business unit be number one or off with your head.

GE sucks badly lately, so I wonder if this "swing the axe" rule is good for anything other than war.

[MK14]

That is why you let an italian guy design your lamp, built it with your hands and out of the most luxury expensive materials you can get your hand of, sell maximum eight per design @ £79000.- and don't forget to call it exclusive art and lay the emphasis on only 8 pieces made and lie that half are already sold to make those people with too much money make haste for ordering.

Great idea!
Banksy LED Lamps.



Limited edition of only 8.

I can even use the £79,000 in Italy, to buy the Red Ferrari, there and then.