We submitted a bid for a cluster. A large one, and we were being very aggressive on price. Very thin margins, spoke with our suppliers to make sure we got the best deal we could get.
Come the bid open and … we are on the high side. Some of the bids are lower than our cost of materials.
Ok, if everyone is bidding the same thing, how is this possible? A few simple answers.
First: They are not all bidding the same thing. Some are massively underbidding on the specs. Its the only way they can come in low priced. We have seen this before, and this has a nasty tendency to pre-dispose the business types running the bid to exclude the “higher priced” (e.g. on-spec) bids. This explains the extremely low bids I saw. Omitting requested parts, using lower speed versions of parts than requested, etc.
Second: Some of the suppliers are possibly favoring particular vendors. Well I hope not, and most suppliers deny this. Some remain mute when asked. This is as far as I know (IANAL) illegal. Suppliers are bound to follow the Robinson-Patman Act in the US. This means that if we and a competitor are bidding on the same cluster, that if we go to the same supplier X, that supplier is legally obligated to provide us the same price that our competitor will get, and vice versa.
Third: Some suppliers are discounting the heck out of their gear, taking a loss on it. Again, this is known, and some of the players that showed very low pricing are in fact likely doing that. As well as underbidding on spec’s.
I am not here whining about this. I think it is strange that we have anti-dumping provisions for our foreign trade, though we seem to happily enable them here in the domestic trade. No, business is not fair, it never will be. It is about competition, and leveraging competitive advantage. You the consumer get to decide what you want. If you really love the Walmartization of this industry, you will see the large players doing this, effectively freezing out the smaller players with higher real value. Which means at the end of the day, you will get only Walmart stores.
It is at least amusing to me to see people protest the encroachment of Walmart on their towns when the only real value they place on anything is in the inverse of price. Higher value is lower price. Well, this isn’t true, higher value is not really lower price, but the business people will be pushing to spend less under all circumstances. Even if the system is not to spec.
Our pricing was comparible to (actually better than) a competitor who appeared to follow the spec’s.
Such is life. Business is a contact sport, and we are going to keep playing. I hope this customer sees past the low-balled pricing of under-spec’ed gear, though I am a pragmatic realist, and I don’t believe that denial is in our best interest.
Just remember, as IDC noted in the past, you can get cheap, but if you get enough cheap, cheap is all you will ever be able to get. And that means that “good” is somehow lost in the noise of “cheap”.