Sourcing Management: Are you ready to order?

Have you been seeing price increases from your suppliers/factories since the second half of 2020? How do you plan to place orders faced with rising prices?

As the virus continues to spread throughout the world, the market has been in chaos leading to these challenges: maintaining inventory, global inflation, unstable exchange rates, panic hoarding, etc.

Currently, many suppliers are still challenged with rising raw material costs and unstable exchange rates. The validity period of a quotation is short, and the market is also in a state of flux, which puts pressure on importers to make quick decisions about when to place orders.

The rising prices have the same basic causes, but the reasons are different if subdivided into each industry. For example, computer chips. The price of the chip is different each day as sand —used in the production of silicon chips—is in short supply. Some factories have had to stop production for emergencies.

No matter the reasons for rising prices, importers must continue to place orders. So how to order is a big question. Here are some insider tips:

1. It’s very important for the buyer to keep a close eye on the market.

–  Online research is a convenient way to follow market trends. We suggest browsing related websites to review price indexes and reference price changes per day, per week or per month.

– For products in which raw materials account for a high percentage of total costs, we also suggest researching the costs of these raw materials in addition to knowing the price fluctuations of the complete product. Understanding the market trend of raw material is also very important.

2. The price index is only for reference. Knowing the real price is necessary to request quotes from more than 3 suppliers – also known as the RFQ/Benchmarking process.

3. Policies issued by local governments also greatly influence pricing. At times, the government will adjust its strategy to cater to the strategic direction of the whole country. In emergencies, some policies will also be adjusted to maintain political and economic stability.

4. Price analysis of per item is also a good way to manage suppliers. For an item with increasing costs, asking the supplier to provide the detailed cost increases of each part can help you understand the actual situation.

The above steps will help you better understand the market, making it easier to know the best time to place an order.

For more information on how CPG could help optimize your order placement strategies, contact us.

 

By Leemy Li