In today’s competitive marketplace, brands constantly look for ways to reduce costs and improve their bottom line. One of the most effective ways to do this is to understand their supplier costs. But is that realistic?
Imagine a consumer entering a retailer asking, “How much do you make on this item?”. Some suppliers are being asked to provide their costs on products they are trying to sell to big brands. They feel they have the right to know how much you make off them since they are a significant customer. It’s wrong, and it’s anti-competitive.
Generally, the antitrust laws require that each company establish prices and other competitive terms independently, without agreeing with a competitor. When purchasers choose what products and services to buy, they expect the price to be determined based on supply and demand, not by an agreement among competitors.
They are also making other unrealistic demands. Adopting a tactic widely used by 3G Capital, the Brazilian private investment group behind the recent merger of Heinz and Kraft Foods, a growing number of the world’s largest food and packaged goods companies are asking their suppliers to give them as much as four months to pay their bills — even though they typically require payment from their own customers in 30 days.
Supplier costs are the expenses a brand incurs to acquire the goods or services it needs to produce its products or deliver its services. These costs can include the price of raw materials, labor, transportation, and other expenses.
There are many reasons why brands want to know their supplier costs. Here are a few of the most important:
- To negotiate better prices. By understanding their supplier costs, brands can better deal with their suppliers for lower prices. This can lead to significant savings over time.
- To identify areas for cost reduction. By understanding where their supplier costs are going, brands can identify areas where they can reduce costs without sacrificing quality. This could involve finding new suppliers, negotiating better terms, or changing how they produce products or deliver services.
- To improve margins. By reducing supplier costs, brands can improve their margins, which is how much they make on each sale after all expenses have been deducted. This can make the brand more profitable and attractive to investors.
- To mitigate risk. By understanding their supplier costs, brands can better mitigate the risk of price increases or supply disruptions. This can help them to maintain a steady price for their products or services, even in the face of changing market conditions.
- To improve transparency. In today’s world, consumers increasingly demand transparency from the brands they buy from. By knowing their supplier costs, brands can be more transparent about where their products come from and how they are made. This can help to build trust with consumers and boost brand reputation.
There are many good reasons why brands want to know their supplier costs, but they may be anti-competitive. While many brands report huge profit increases, some suppliers are being squeezed. This means suppliers will need to cut costs which could result in a loss of jobs and investment in manufacturing.
If a brand is considering you as a supplier, be ready to disclose confidential data and share inside company information on your profits.