Recently a contract manufacturer contacted us for availability and price on a product they had purchased from us for many years. The item in question had not been purchased for nearly 2 years and the price had risen.
The response from the contract manufacturer was “Ouch, percentage-wise a huge increase! I can’t pass on the increase so it will come out of my margin”
Another manufacturer also revealed that they were working to older costings when quoting and they had not included some of the more recent business costs.
So what has caused the increase in costs for manufacturers which have been well documented? Since June Sterling has dropped against the US Dollar. In a nutshell anything that is imported will have increased in price if it is purchased in Dollars or Euros. On average prices have risen by as much as 20%. In addition raw materials such as copper have increased substantially, this will increase for example the prices of solder and cable.
In addition business operating costs have increased. The minimum wage has increased and auto enrolment is an additional cost that even the smallest businesses will have to pay in due course.
Manufacturers need to look at the work they are undertaking and ensure they are using up to date costings especially for products they have been manufacturing for many years. Ask yourself when was the last time you revisited a quotation for a particular project. If it was prior to June 2016 you should make it a priority to recost otherwise like the contract manufacturer quoted earlier it will come out of your profit.
The notion that the end customer will go back to China if you increase your price is false. Whilst the China price may not have increased by the time the exchange rate is factored in, the final price will have risen.
So look again at your costs and ensure your quotations are accurate to make your business profitable.