Tuesday, September 14, 2010

Sometimes We Have to Say “No Bid” – Four Determining Factors

VMI has been in business going on thirty years. Way back when, VMI made voltage multipliers. (In case you didn’t know, VMI is short for “Voltage Multipliers, Inc.”). When the world’s supply of high voltage diodes joined the endangered list in the 1980’s, VMI invested time and resources in manufacturing their own. The intent was to keep the supply going so they could continue to build assemblies.

Then, a funny thing happened on the way to the future. With the advent of LCD displays during the 1990s, demand for voltage multiplier assemblies took a nose dive. Fortunately for VMI, by that time, high voltage diodes had become the mainstay of business.

Today, VMI boasts several product lines, many of which came about as a result of VMI’s ability to find solutions to customer’s unique applications. Almost always, the applications were technologically challenging, fast paced, and definitely not mainstream.

Some projects are clearly not a good fit, and entering a ‘No Bid’ is a no-brainer.

But what about the borderline cases, the ones that don’t fit neatly between the lines? The ones that, maybe, with a little bit of tweaking and a lot of hard work, might clean up nicely…? Sometimes the calls are pretty tough.

Rarely do one or two factors flag a project as no-bid. Frequently it is the compound effect of several factors. In the end, a project has to be profitable in one way or another. The profit may be tangible or intangible, but it has to be there.

There are many factors that influence the decision to bid or no-bid. Here are four of them, in no particular order -

1. Resources - Based on the estimated complexity of the project, do we have the resources necessary to deliver a design within a reasonable amount of time? Are there minimum buys on materials? If so, how much? Minimum buys, and lead times, can make a project less attractive, and are often things VMI has no control over.

2. Need By date – If the need date does not allow a sufficient amount of time for design and verification, it’s a red flag. Power supply applications take significantly longer than typical rectifier or multiplier designs. The turn-around time on a simple rectifier or multiplier might be as short as 24 hours. In any case, there has to be sufficient time allowed for design, test, and possibly multiple iterations.

3. Life-time quantity – There are no hard and fast rules about life-time quantity, but a certain amount of potential - future business opportunities, developing a relationship with a new customer, or even supporting an existing customer on a financially negative project – has to be present.

4. Target Price - Is the target price reasonable? If we can’t meet the target price, how close can we come, and how soon can we get there? Often prices come down after the prototype stage. This can be attributed to design stability, taking advantage of scale – i.e. purchases made in volume, continuous process improvement, and NREs that may have been amortized into prototype pricing. If the target price is $5 for a 100kV power supply for a life-time quantity of ten, it is apparent up-front that a project like this is not a good fit. However, if the unit price is $500 for a monthly quantity of 10, it may warrant a closer look.

In the event VMI no-bids a project, we do it with great regret. It pains VMI to have to no-bid a project. We love a good challenge. Solving technical problems pushes the limit on our comfort zone and helps us grow.

In the event we “no-bid” a project, we will do everything possible to steer the customer in the right direction, even if it means sending them to one of our competitors.

As they say, "Timing is Everything"....

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