> Not to nitpick but managing supply-chain risk is a lot more complicated than insurance.
I agree. I manage an ERP system at a pharma-manufacturer. I added a YMMV precisely because of the different situation - different impact reasons. My main point was:
Incumbent Sales Price SP1 = Cost of (Base + Risk + CYA-buffers) + Predetermined Margin
Incumbent Profits PR1 = SP1 - Total Actual Cost
Startups Sales Price SP2 = Cost of (Base + Risk) + Predetermined Margin
Startups Profits PR2 = SP2 - Total Actual Cost
If you assume Cost of (Base + Risk) to be relatively on-par then SP1 > SP2 because SP1 includes CYA-buffers. The problem is that when incumbents become lean and shave off overhead, they can continue to command high prices due to entrenched contracts and make a much larger profits. This reinforces their position in the industry, making it harder for startups to compete.
Sidenote: While in a perfectly competitive market, the sales price should be determined by the intersection of supply and demand curves, instead of being a predetermined markup based on cost, in most contract manufacturing environments, all the costs are known, markups are expected, and thoroughly negotiated.
I agree. I manage an ERP system at a pharma-manufacturer. I added a YMMV precisely because of the different situation - different impact reasons. My main point was:
If you assume Cost of (Base + Risk) to be relatively on-par then SP1 > SP2 because SP1 includes CYA-buffers. The problem is that when incumbents become lean and shave off overhead, they can continue to command high prices due to entrenched contracts and make a much larger profits. This reinforces their position in the industry, making it harder for startups to compete.Sidenote: While in a perfectly competitive market, the sales price should be determined by the intersection of supply and demand curves, instead of being a predetermined markup based on cost, in most contract manufacturing environments, all the costs are known, markups are expected, and thoroughly negotiated.