Up or Down - When is the right time to negotiate unit costs?
After the Lunar New Year Festival, factories are shaking off vacation mode and getting back into work mode. Now is the perfect time to review product costs, especially as China's borders have reopened.
If you've done any type of manufacturing, you have received a price increase request from your supplier...On the other hand, you have also asked for a price reduction. As a manufacturing and product development agency, FSE has handled many such requests from both sides. Before we start negotiations, we analyze either the root cause of the price increase or investigate whether a price reduction is warranted. Some of the factors that affect unit costs could be:
Raw Material Costs
Fluctuation in raw material costs could be a reason to look at your unit price. Many of us remember in 2021 there was a sharp increase for the cost of steel, silicone, rare earth magnets etc. When negotiating those price increase requests, our merchandising team utilized tools to research past and current raw material costs in order to compare the percentage of increase requested on the unit price. From here we made a determination whether or not the increase requested was reasonable or not.
Fluctuations in exchange rates have a tremendous impact on the unit price of a product. As we know that the exchange rate is a floating rate and relatively unstable. Therefore, when current costs and exchange rates drop more than a certain percentage we start negotiating for a better unit price with the supplier.
While raw material costs and exchange rates are two big factors contributing to the rise and fall of unit costs another contributor is the rising cost of minimum wage levels in the past five years.
In conclusion, given these complex interplay of these factors influencing unit costs, FSE has cultivated a base of trusted suppliers in China and other ASEAN regions in addition to Europe. When tackling a new project with our client we consider multiple manufacturing regions in order to find the best fit for the project.
FSE is a women-led team, working with over 300 vendors located globally. We have 30 years of experience providing our clients with the tools and guidance they need to manage their sourcing, product development, quality and logistics. Drop us a note on our Contact Us page or send us an email to firstname.lastname@example.org. We'd love to see how we can help on your next project or assist with challenges you are facing with your current project.