In our decades in contract manufacturing in China, we’ve learned to watch trends carefully and do our very best to stay two steps ahead. As we enter Chinese New Year, we’ve been hearing a lot about rising commodity prices and how they will affect global markets in 2017. Here’s a short video with a few ways to handle changing material prices.
CMD’s take on rising commodity prices…and what you can do about it. from Christina Li on Vimeo.
Navigating Rising Material Prices in Manufacturing
We’ve been talking about material prices for the last couple of quarters. We anticipated that prices were bottoming out and would soon start moving up—and that’s exactly what we’re seeing now. As we enter a heavy production and shipping period right before Chinese New Year, the situation is becoming more acute.
This challenge becomes especially tricky when there’s no time to renegotiate with the factory. But the clock is ticking, prices are rising, and profitability in 2017 may depend on taking action now.
Gain Transparency with Material Cost Breakdowns
One proactive step you can take: Request a detailed list of materials and a price breakdown.
- This helps you understand what percentage of the price comes from materials vs. overhead, labor, packaging, etc.
- If there are fluctuations in labor costs, exchange rates, or material prices, it becomes more of a calculation than a negotiation.
- Conversations can still be difficult, but this level of transparency can be a game-changer.
Understanding your actual costs for materials vs. other expenses helps you find the sweet spot to navigate pricing changes effectively.
We are not experts in commodity prices… but the data is trending up. We do have a feeling that prices have been low for a long time, and we are going to see a sustained period of material increases.
Strategies for Managing Costs in Contract Manufacturing Asi
Some customers are placing blanket orders for the entire year and paying a deposit upfront. This strategy allows:
Factories to secure materials at locked-in prices
More stability in pricing over an extended period
Less risk of price fluctuations disrupting production
However, not every business has this flexibility. Many will have to ride through the storm as cost increases get passed down the supply chain, making downstream conversations challenging. It can be a bumpy ride.
Need Help Managing Rising Material Costs?
Not sure how if your approach is set to weather the storm of rising material prices? Let us help.
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