SUPPLY CHAIN COST REDUCTION AND PRICE STABLIZATION
The Client: A EUROPEAN FMCG Company
Executive Summary: The rising cost of low cost supply chain has become a top issue for the client. SupplyWeaver’s commercial expertise, in-depth knowledge of tax and local policies enabled a tax efficient low cost supply chain and negotiated back with suppliers with winning results
Business Challenge: The client was facing regular price increase requests from suppliers because of the rising costs of raw materials, currency exchange and VAT rebate rate changes, inflation, etc. They have limited understanding of the real cost impact of these factors, find it is hard to negotiate back with suppliers and have to accept price hikes.
In addition, some components have to be imported from Europe to China for assembly, tax implication is significant without careful planning.
How SupplyWeaver Helped: SupplyWeaver analyzed the cost implication of each element, and its real impact to the total cost of products. Some examples:
Raw materials: Material costs always have fluctuations. When costs are up, suppliers request increases. When costs are down, very few suppliers offer price cuts. A mechanism is needed to control the movement.
Currency: RMB will only rise further against major currencies. Many suppliers asked for same rate for price increases. SupplyWeaver led the negotiation to share the impact. Suppliers who import raw materials from overseas, the currency will only impact labour part of the product. Increase can be cut further.
VAT Rebate: China frequently reduce VAT rebate rates. Supplier typically requested full price increases for rebate cut. The real cost of VAT rebate is far less than quoted. It depends on many factors, such as: does the supplier supply domestic market? do they import raw material? the nature of their businesses, etc.
Component Tax: Import components from Europe, the tax is hugely different for different scenarios. Buying directly from European suppliers, or buying from their Chinese operations; components go directly to factory, or re-routed from Hong Kong or Free Trade Zones. Tax optimization can generate big savings
Performance Improved: SupplyWeaver carried out full analysis on many key factors, and provided solid evidence for the real cost impact which convinced suppliers to accept significantly reduced increases.
• Average increase requests were cut 56%
• Optimized financial and material flows saved $560k/annual
• Established price mechanism gives the client full control of price movement.
