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Supply Chain
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Does This Describe Your Industry?

A limited number of rubber suppliers supplying to multiple of your competitors will keep your rubber cost up. If the suppliers are able to convince you that their product is unique that's a coded word for even higher price. Multiple of your competitors chasing after a limited number of customers will keep your price down, sometimes all the way down. If your company is situated between the Monopolistic or Oligopolistic Rubber Suppliers charging you the high monopolistic price and a Monopsonic Customer paying you the low Monopsonic price then your company is in a very tough neighborhood. 

Kudos to Your Supply Chain Management Team (SCMT):

Your primary and backup rubber suppliers have positioned their rubber consumables as specialty items (thus charging high specialty price) yet the competition within your industry is pressuring you to offer commodity price for your specialty products. That's a upside down world in our opinion. The rubber consumable should be the commodity. In order to thrive in this tough neighborhood, you must find a right tool to capture even more savings. Figure 1 explains how FACOM/1 is useful to your SCMT. SCMT does a great job as a cost reduction champion. This is represented by riding the downward slope of price line. With FACOM/1 they shift the entire price line lower to the dotted line. SCMT is a company maker. Now, that's exciting. 

 

What is FACOM/1?

It stands for "Fully Adjusted Cost Optimization Method 1." It is a collection of rubber know-how we've accumulated since 1958. We have data mined the best practices ranging from best custom compound to best customer experience to best production method, and filter them with the best cost optimization method. It is designed to provide immediately usable, practical benefits without spending a lot of your time and money trying to reinventing a wheel that may already exist. 

Will I benefit from FACOM/1?

Yes.

What makes FACOM/1 consultants subject matter experts?

Elastomer technology is not a rocket science. But in case you ever needed one, our staff does include an ex-rocket scientist. We may be elastomer mavens, but we are also shrewd scanners of businesses where the elastomers play safety or mission critical roles. The consultants have median industry exposure of 20+ years. We know rubber, and we haven't met a rubber problem we didn't like.

Why should I use FACOM/1 consultants when I can get information from the current suppliers?

Our critical value-added are as follow: we provide

 

1) The right solution for

2) The right application at

3) The right cost. 

This is another way of saying, we help your supply chain management team eradicate over-engineered solutions causing over-usage of overpriced products. It is conceivable that current product suppliers may be forced to provide you with information positioned to upsell their particular brand of product or advise you on how to maintain your equipment resulting in over-usage of their product.

Top line Question: How much does it cost?

In our experience this type of top line questioning often leads to barely good enough, but less optimized solutions provided by the lowest bidder. This type of doubt will never come to you when you work with us. We will not find us to be the lowest bidder for the following reason -- "did you know we are sitting on 2 million gallons of rocket fuel, a nuclear weapon and a thing with 270,000 loose parts that was built by the lowest bidder?" – quote from the Movie Armageddon. 

Bottom line Question: So once again, How much does it cost?

We are confident you will get the most bang for the buck through our service. While past performance is no guarantee of future performance, we believe we are best equipped to provide the best results. Often we find we are the only source in the rubber industry to deliver our level of unbiased objective recommendations on specific projects. The savings are real.

Is there an independent business research done supporting FACOM/1?

Yes, there is. FACOM/1 is a way to introduce collusion and price wars between oligopoly vendors thus achieving higher quality at lower cost. A Dynamic Oligopoly with Collusion and Price Wars by Chaim Fershtmana and Ariel Pakes states that "most of the theoretical work on collusion and price wars assumes identical firms and an unchanging environment, assumptions which are at odds with what we know about most industries.

Moreover and equally important, the assumptions of identical firms and an unchanging environment enable only a limited investigation of the implications of collusion; they only allow us to investigate the impact of collusion on prices. Whether an industry can or cannot support collusion also effects the incentives to launch products in (or to enter) the industry and to develop the products after they are launched. That is the ability to collude will have an impact on the variety, cost, and quality of the products marketed by the industry, and this can have as much or more of an effect on welfare as do the price effects of collusion.

In this paper we extend the collusion framework to allow for heterogeneity among firms, investment, entry and exit. To be able to do this in a realistic setting and still get fairly detailed results we give up on the elegance of analytic results, and rely instead on numerical analysis. Hopefully researchers will eventually be able to take the needed parameters from empirical results on the industry of interest.

The focus is on a model with symmetric information in which it is hard to sustain collusion when either; one of the firms does not keep up with the advances of its competitors (both inside and outside the industry), or a "low quality'' entrant enters. In either case there will be an active firm that is quite likely to exit in the near future. Not only is it hard to punish a firm who is likely to exit after it deviates, but if one of the competitors is near an exit state the other incumbent(s) has an incentive to price predatorily (that is to deviate themselves).

We compare the numerical results from an institutional structure that allows for collusion to one which does not (perhaps because of an active antitrust authority). Price paths clearly differ in the two environments; in particular only the collusive industry generates price wars. Equally interesting, however, are the implications of the different investment incentives. The collusive industry offers both more and higher quality products to consumers, albeit often at a higher price.

The positive effect of collusion on the variety and quality of products marketed more than compensates consumers for the negative effect of collusive prices, so that consumer surplus is larger in the collusive environment. I.e. the results indicate that considering only the price, and not the investment, effects of collusion can be seriously misleading."

Sounds good, what's my next step?

We encourage you to read our case studies, review the FACOM/1 and conduct your internal BOP analysis (best, optimistic, pessimistic) on potential savings. If you can visualize a cost savings in your current rubber consumable spending, we are certain we can help you scrub more.

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