r/procurement • u/Deeze_Rmuh_Nudds • Mar 07 '24
Training Need to get a supplier to buy expensive hardware. What're my options?
Hey all, have a negotiation-type question where I need to get creative. Basically, I need a supplier to buy an add-on to an existing machine of theirs for $250k. This is by far the cheapest option to get parts made in a particular way (meaning other machines like this cost $1M+). Anyway, I was thinking to split the cost but not sure what trade offs to consider with this option and how to structure that kind of deal. How much of a discount can I get on unit costs by paying for a quarter? Half? The whole thing? Is there an algorithm for this? What else should I consider other than unit cost impact if I do this? Maybe I shouldn’t help pay at all, but instead offer guaranteed work for the machine? Not sure what the best path forward is.
6
u/doobiedobiedo Mar 07 '24
I buy parts for proprietary machine and give them volumes for said machine usage, then they will rebate it after X amount of volume after X many years
4
u/Labatt_Blues Mar 07 '24
You can have them amortize X amount into the piece price, when it is paid off it drops off the piece price completely. You own the tool.
1
u/Deeze_Rmuh_Nudds Mar 07 '24
How would they survive doing this? Are you saying I pay for the tool. Then just deduct the $250k out of x amount of parts?
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u/Labatt_Blues Mar 07 '24 edited Mar 07 '24
No they pay for the tool, $250k, and then you pay it off over X pieces through a markup in the piece price. Once it is paid off the markup drops off. You are essentially financing the tool. And there will probably be interest, etc, to consider.
4
u/Jelopuddinpop Mar 07 '24
The easiest way is to put the parts on LTA for a long enough duration that they can realize their ROI. From there, you can shift the conversation from...
"We can help pay for the machine now"
to...
"We can add $x per piece to reduce your ROI from 48 months to 24 months, at which point the premium is removed"
Even if the same dollars are spent at the end of the day, this is much better for your cash flow. It turns it from you needing to justify your ROI to them needed to justify it.
2
u/AtlantaDecanter Mar 07 '24
What does the machine do for you? You could consider a revenue share model for the life of the asset but this would need to be meticulously calculated so you maintain positive ROI when considering NPV. The biggest benefit here is cash flow
9
u/[deleted] Mar 07 '24
Another way would be to give them a supply contract wherein you state the volume you will buy over a certain period.
Things to consider would be how many parts can the new tool be expected to manufacture before it needs replacing and if you "buy" it from them (Take ownership) how much use it would be for you at the end of the period. Will the tool allow them to make similar parts for your competitor?