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.
We’ve been talking about material prices for the last couple of quarters. We were anticipating that material prices were bottoming out, and prices were going to bounce off the bottom and start moving up. We are seeing that move right now. And as we enter into a heavy production and shipping period right before Chinese New Year, the situation is becoming more acute. What can you do to prepare for rising costs?
It becomes especially tricky to handle this challenge when you don’t have time to be re-negotiating with the factory. But the clock is ticking, prices are rising, and profits in 2017 may depend on action.
One of the things you can do: ask for a detailed list of materials and a price breakdown. That helps you understand what percentage of the price is the material itself, compared to overhead, labor, packaging, etc. Once you have those price breakdowns, if there is movement in labor costs, exchange rates, or material prices, then it becomes more of a calculation than a negotiation. So conversations can still be difficult, but you may find this level of transparency to be useful. Knowing what your actual costs are on material vs. other can help you find the sweet spot to navigate changes in pricing.
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.
Some customers are putting in blanket orders for the whole year, and paying a deposit on a full annual order. The factory then places their material orders and locks in prices for an extended period of time. Not everybody has the opportunity to do this, and some just have to ride through the storm. Often prices get passed through the supply chain making downstream conversations challenging. It can be a bumpy ride.
Not sure how if your approach is set to weather the storm of rising material prices? Let us help.
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