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Your Chinese supplier's price hasn't moved. Should you worry?
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#industrial sourcing China#supplier quality control#purchase order specification#reshaped-v3

Your Chinese supplier's price hasn't moved. Should you worry?

Uzair bin Haroon

Treat it as a warning, not a win. A Chinese factory that quotes you in dollars pays for its steel, its wages and its electricity in yuan, and the yuan has gone from 6.9877 to the dollar on 2 January to 6.6975 on 18 September — about four per cent stronger. A dollar price that has not moved since spring has been absorbing that out of margin, and margin is not somewhere a price sits for long.

So plan for two to three per cent on the next re-order, and if it does not come, check the part that does. That split is a judgement, not a published figure — but it is the choice your supplier is actually making.

Where the four per cent goes

The arithmetic is unforgiving. A supplier that books revenue in dollars and pays costs in yuan loses roughly a point of margin for every point the yuan gains. Four points is four points off your order before anything else has moved — and other things have moved. Chinese producer prices this year have risen on the input side while output prices for consumer goods fell, which is the same squeeze read from the other end: what the factory buys is dearer, what it sells is not.

There are only three ways out of that, and you will see two of them.

  1. The dollar price rises, and it appears on the next quotation.
  2. The factory absorbs it, for a while, and then stops absorbing it.
  3. The part changes and the price does not.

The third is the one that never reaches a quotation. Zinc plating at a third of the specified thickness still passes a thread gauge and still goes white in one wet season. A bearing one clearance class off runs warm and loses its finish at hour four of a night shift. Castings go thin at the bosses. None of that requires bad faith; it is what a full order book, a rising currency and a flat selling price do to a bill of materials.

It also reaches brands that are not Chinese on the box. YATO is specified in Wrocław and made by suppliers in China, settled in dollars and yuan, by the owner's own half-year filing. A stronger yuan lands on a cost line in China long before it lands on an invoice anywhere else. The socket that arrives is still stamped chrome-vanadium. Whether the heat treatment is what it was in March is a hardness test, not a reading of the box.

Four lines for the next purchase order

Do not change supplier over a price suspicion. Change the paperwork, so that a change in the part becomes visible instead of arguable.

  1. The currency, the rate and the date it was struck. Then say in writing who carries a reprice between order and shipment. That conversation is cheap before the container is booked and expensive after.
  2. Coating in microns, with the test named. "Zinc plated" is not a specification. A gauge reading or a salt-spray hour count is, and both can be checked on arrival.
  3. A mill certificate against the heat number on this batch. Not last year's certificate sitting in the file.
  4. A first-article sample, kept. One known-good piece in a drawer is the only way to prove a part changed when its part number did not.

Those four lines cost nothing to add and they move the argument from opinion to measurement. If the answer comes back as a price rise, at least it is a rise you can see.

And if you would rather buy from held stock than chase a heat number across a supply chain, the Yato range at Vesprr Tools is on the shelf here.

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