Have you ever read certain ads and seen a wall of text at the bottom of the ad in very fine print? This print covers the legal information and costs that are not explicitly mentioned in the main ad. This is done on purpose. By law, it must be there. If people took the time to read it, they may not buy those products.
It can happen with your quote on ordering Chinese products just as easily. However, a good sourcing agency and purchasing agent knows the tricks and will catch them before you ever see them.
This piece will discuss those sneaky costs, and the steps Sourcing Nova and your purchasing agent take to keep those costs down or away with a standard quotation format.
What is the meaning of a quotation in business
All Chinese product sourcing begins with a quote from the supplier. The quote is the price for the product order based on the information shared in the RFQ from the buyer.
The manufacturer will consider the buyer’s procurement request and create a quote for the price on those goods. Many novices make fundamental mistakes when budgeting for their Chinese product order – they look only at the price to evaluate the cost.
So, what is a quotation in business?
A quotation is much like a price list and will contain the following information as a general rule:
- Basic product information
- Product technical parameters
- Price quote terms
- Other pertinent information
Quotation letter format
The quotation header will have this information: quotation title, date and basic information of the seller.
The seller’s information will include manufacturer’s logo, name, address, contact information and the like.
Some individual quotations will have the same information from the buyer as well.
Basic product information
Product information will include the serial numbers, product name, specific model, specifications, price and additional information. Depending on the product, the main information will vary as well.
Product technical parameters
Depending on the product, the quotation sheet will have specific technical parameters.
Price terms mean the payment method, shipping and other remarks necessary for payment.
This represents the complete content of the general quotation.
The quote may have slight differences based on the specific product. There may also be slight variations in the displayed information.
Some manufacturers that we work with include packing information as part of their quotation. This helps with the calculation of international shipping fees.
Here is the trap.
Most novices only understand bits and pieces of the quotation and not the entire created quote. Because they lack this understanding, it can cost them quite a bit of money on their product purchases.
Common misunderstandings of novice purchasers
Focus on price only
The term ‘quotation’ is not just a quotation on the price alone. There is considerable information within the complete quotation meaning. Many are fooled into thinking the quote provided is the final price for the completed products. Novices do not consider information like raw materials, taxes, the period the quotation will remain valid and more.
Only pay attention to the quotation of the main material
It is a common technique for some manufacturers to give low pricing quotes to gain the buyer’s interest. Buyers who are not familiar with the terms of a complete product quotation often miss the ‘fine print’ of the quote.
By fine print, we mean the supplier will provide a low quote to the buyer. The supplier then raises the price on some of the more obscure parts of the goods. These are often small in number and volume but add up quickly. Since the amounts and prices are small, buyers rarely take note of them.
Only focus on product pricing quotes and ignore changes in supplier raw material costs
Almost all buyers are aware of the product price from the supplier. However, many do not pay attention to the cost of the raw materials. Raw materials are commodities and often have fluctuating prices. This means manufacturers will often use this to leverage higher prices on products. If the raw material price jumps up, the quotation price will go up accordingly.
If the price does go down, some suppliers will not change the quotation. They will keep the higher price and pocket the profit difference.
Chinese steel is the shining example of this. China’s steel prices have fluctuated in recent years. The manufacturing cost of steel as the main raw material changes in price. Many novice customers only see the rising costs of steel on the quotation sheet. The supplier will not share the falling costs of the same steel. This is information asymmetry and is a common tactic used to negotiate higher prices.
The strategy and method of purchasing agent
This is where a professional purchasing agent is so vital for proper procurement. Sourcing Nova’s team have intimate knowledge of the common tricks of suppliers and have contingency plans in place for countermeasures. This contingency plan is based around good quote management.
Quotation according to the cost structure of the purchaser
The purchasing agent has is a standardized and unified quotation format.
The details and information in the quotation for goods can easily confuse novice buyers. The buyers will focus their attention on the price of the main product. This is what the supplier wants the buyer to do.
This method can have problems with different prices of products and determining the final product cost.
Our purchasing agents have suppliers provide quotes based on our cost structure. The quotation format must be the same as the requirements of the purchasing agent.
If the buyer is making a very large purchase, the purchasing agent can send the sample quotation format template to the supplier. The supplier can use the form for the quote, format and cost calculation.
The simple form helps purchasing agents calculate supplier quote information and determine purchasing costs.
For example, Sourcing Nova’s warehouse is in Yantian Port, Shenzhen. We will have the supplier quote the ex-factory price or FOB Yantian.
The purchasing agent learns the final cost from this supplier and uses it for comparision quotes across many regions.
The unified quote template makes it harder for suppliers to hide costs on products.
The calculations and comparing quotes are based on the cost structure of our purchasing agent. Our purchasing agent has deep knowledge and understanding of the information on the quotation form. This means less chance for an error in the price on products.
The buyer’s requirements can be a part of the quotation as well. This makes communication easier between all parties involved.
Many suppliers will not use the template the purchasing agent will provide. Suppliers would rather use a form they know and understand. Sourcing Nova can convert the supplier’s form to our own and send our form to the supplier. The supplier can then confirm the information is correct.
This makes sure there is an apples to apples comparison and not an apples to pears comparison.
Study the quotation provided by the supplier in detail
The quotation form from the supplier often has information that does not match with the buyer’s information.
It is important for the buyer to read, review and study the information in the quote very carefully. Then, the buyer can ask specific questions that explain the quote. Questions like:
- Is the name, specifications, model and particular requirements of the subject matter complete?
- Is there a minimum order, MOQ?
- Does the quote have taxes included? Is the offer final?
- Does the price transparency meet the requirements?
- Is the cost structure reasonable and fair?
- What is the level of the quotation compared to others?
- Is this a low-ball quote to earn the business?
- How long is this quote valid?
- Are there special promotions?
- Is there a cash or quantity discount?
- Does the cost allocation of tooling and mold involved comply with the agreement?
- What is the prepayment ratio/payment period?
- What is the flexibility of delivery time?
- Is there a quality guarantee period and quality treatment process?
These questions give the purchasing agent clear and simple answers. The chance for a supplier to cheat the buyer with unfair pricing is very limited.
Pay attention to the flexible items in the quotation
Certain products have special design parameters. Suppliers often offer flexible quotations for goods in these cases.
The supplier does this because their goal is to make a way to future price increases on the products.
Novice buyers who are not careful will often pay the the extra costs the supplier recommends. The supplier is able to make more profit because of the novice’s misunderstandings.
Some suppliers use a tiered quote method. The quote will include quantity discounts, and most buyers will select the wrong quantity order. This article will show how to analyze quantity price discounts.
Go deep into the factory to analyze
If a purchasing agent has time, they will study the supplier’s main raw materials costs, quoting process, material loss rate, conformity rate and average profit margins. They do this as a part of finding an appropriate supplier.
This has real value for determining the best supplier quotation for price on goods.
All purchasing agents do a detailed visit to the supplier’s factory. This gives the purchasing agent a chance to learn the supplier’s raw material supplier.
If they can learn this, the purchasing agent can learn if the supply of raw materials is guaranteed, easy to deliver and works with R&D.
Our purchasing agents do on-site investigations because some suppliers struggle with production and operation of the factory. This can mean issues with pricing quotes, on-time deliveries, product quality and quantity. If the supplier has issues with any of these, we will find another supplier.
There is another blog that focuses specifically on what makes a good supplier available for you to read here.
Proper procurement means advanced planning and complete understanding of the quotation.It is also important to maintain and control the production process to keep the quality high and defects low.How can Sourcing Nova help you with products for your business? Let us know in a comment below.