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How to Handle Price Increases from Offshore Suppliers
THE SOURCE CODE BLOG
No matter the industry, Chinese suppliers have historically offered manufacturing cost savings in the 20-30% range. In recent years however, prices for the majority of products manufactured in China have been steadily increasing. While still far from the manufacturing costs seen North America or Europe, this recent trend has been forcing some importing firms to rethink their sourcing strategy and scramble to maintain competitive price points.
One of the most common responses to a price increase is to keep current price points the same and suffer lower margins in the interim, thinking the price increase is merely temporary. Let tell you right now, it’s not. This phenomenon is a direct result of an increased demand for Chinese manufactured goods. And any economist will tell you, when supply is fixed increased demand means increased prices. Therefore, the conversation turns to best practices for handling price increases in order to mitigate your companies risk and maintain a healthy bottom line.
Here are 6 day-to-day tactics we’ve found to be very valuable:
- Map out your value chain in order to identify where increased costs are coming from (labor, transit, freight, etc.). Create base reference points for each step in the chain and estimate rough percentages of total product cost. Keep an eye on the socio-economic environment – recognize when social, political or economical unrest could hurt product supply.
- Key on volatile products for shorter price updates to customers. For example, we have moved to receiving monthly price updates for most our volatile products.
- Over-communicate to all involved. The more information communicated through the supply chain the better. The faster you can recognize a problem or solution the faster it can be fixed or implemented.
- Be quick to adapt to market shifts. There will be opportunistic times for competitors to take advantage of higher China prices – for many, short term pain will be required to maintain market share.
- Forecast demand to minimize short term pain. Allow manufacturers to pre- and/or bulk buy raw materials at lower costs by accurately forecasting your own demand.
- Build a relationship with your manufactures. Like a good friend, the more loyalty and support you have from your supplier may end up being the difference in receiving a price increase or not.
That’s it for today. Stay tuned for the next weeks post about "The Importance of Long Term Business Relationships".
(For more than 10 years, GCP Industrial Products has successfully offered its customers a unique sourcing process that allows them to save money, streamline their supply chain and grow with new products. Our plans are to continue to grow based upon mutually beneficial relationships and the quality of our products and services to our ever growing customer base. To contact us please click here or phone 1-888-893-5427. Thank you.)