How to reduce the cost of the sourcing company is a key factor in determining the profit of the sourcing company. Let's take a look at the factors that affect the cost of sourcing companies in foreign trade transactions.

1. Quality of procurement documents

The quality of the sourcing company’s procurement documentation has a greater impact on procurement costs and efficiency. For example, if the preparation of procurement requirements is not clear, the supplier is likely to require the purchaser to clarify these situations and it will take corresponding manpower and time, which will reduce the procurement efficiency and increase the procurement cost.

2. Supplier management level

Only when the sourcing company manages the suppliers can the supply chain be managed well. In the manufacturing industry, up to 70% of product costs come from suppliers, and supplier performance determines the performance of sourcing companies and supply chains.

Therefore, the level of supplier management and the quality of management directly determine whether the sourcing company can reduce costs and improve speed and quality. The performance of the supply chain directly depends on the performance of the supplier.

3. The buyer’s bargaining power

(1) If the supplier is a monopoly, then he has the power to set the price according to his own wishes-the supplier is strong.

(2) If the purchase company’s business accounts for a large part of the supplier’s entire business volume, then the purchaser will be in a strong position during price negotiations.

sourcing company costs


4. Market supply and demand situation

Under market economy conditions, the most direct factor that affects procurement costs is market supply and demand. When resources are in short supply and supply exceeds demand, suppliers will increase prices; otherwise, they will decrease prices.

5. The buyer's ability to analyze the supplier's cost and pricing mechanism

Know yourself and the enemy, and a hundred battles will never end. Understand how suppliers set prices and understand how to conduct purchase price analysis, so that purchase costs may enter the track of refined operation.

The understanding of supplier pricing mechanism and the results of purchase price analysis serve as an important basis for price evaluation, comparison and negotiation.

6. Quality, quantity and payment terms of purchased items

The quality, quantity and payment terms of the purchased items affect the purchase price, which in turn affects the purchase cost.

7. Exchange rate

For international procurement, changes in exchange rates will cause changes in the prices of purchased goods or raw materials, which in turn affects procurement costs.

8. The complexity of the process

The more complicated the procurement-related process, the longer it takes and the lower the procurement efficiency. Teresa Metty, the former chief procurement officer of Motorola, gave a wonderful speech on complexity. She said that complexity affects the flexibility of sourcing companies and reduces the resilience of suppliers. It also reduces the utilization of sourcing companies' inventory, capital, and human resources, and affects their ability to respond to market demands in a timely manner. It restricts the hands and feet of sourcing companies and suppliers everywhere, increases management difficulty, consumes more manpower, equipment, and production capacity, causes more inventory, and wastes more time.

9. Procurement risk management level

During the operation of the sourcing company, various unexpected situations may occur, which may affect the effect of comprehensive purchasing cost management, and even cause purchasing costs to increase instead of falling.

10. Force majeure factors

Force majeure such as fires, earthquakes, typhoons, natural disasters, etc. is likely to have disastrous consequences for the normal operation of the entire supply chain of the sourcing company, such as the suspension of production due to lack of stock, out of stock, and inability to supply in time, due to the imbalance of market supply and demand The price increase and so on. The occurrence of force majeure is likely to cause huge losses to the sourcing company.
The above are some of the factors that affect the cost of the sourcing company. To increase the income of the sourcing company, it needs to be in the actual foreign trade transaction


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