What happens if you refuse to send a cost breakdown

If you sell to a Japanese company

Not wanting to send it is the correct instinct

From where you sit, there is no reason to hand your cost breakdown over. There are three. Your margin becomes visible. From then on you are made to justify every line, again and again. And at the next price negotiation, your own figures come back as the reason you should come down. The work goes up, and you gain nothing.

A buyer who wants it, and a supplier who does not want to give it. That pull between the two is the price negotiation. A request for a cost breakdown is not the preliminary to the negotiation. It is part of it.

So this is not something to offer beyond what was asked.

Before you decide whether to send or refuse, there is one thing to do. Work out how much detail the other side is actually asking for. Measure the size of the request before you step into the choice.

Where a buyer stops being reasonable

Material, processing, overhead, profit. I have spent most of my career in automotive and electronics. In those industries, and for outsourced parts in particular, a buyer does want those four separated. But only where the part allows it. A simple machined part and an assembly of dozens of components are not asked for the same detail.

And once those four are separated, that is where the price negotiation starts. It is not a pass mark. It is the starting line.

There are three requests I consider excessive, and I say that as someone who sat on the buying side. First, asking for the actual quotations from the suppliers who sell to you. Second, telling you what percentage your profit is allowed to be. Third, asking what price you give your other customers. All three you can turn down.

A request for your financial statements is different. That one you have to live with. The buyer is looking at your financial strength, to judge how steady the business is. Buying is not a single transaction. A Japanese buyer is looking at a relationship measured in years, sometimes decades.

So what happens if you refuse to send the cost breakdown itself? Two conditions have to hold together. The part is one where a breakdown is possible, and the suppliers you are set against are sending theirs. Where both hold, the supplier who sends nothing is at a disadvantage.

Turn that around. Refusing is not, by itself, what puts you behind. What puts you behind is refusing while your competitors disclose. It is relative. Nobody is judging your company on its own.

Requests I consider excessive

1. Quotations from your own suppliers
2. A cap on your profit percentage
3. Prices you give to other customers
4. Turning these down costs you nothing

Ordinary requests from a buyer

1. Material, processing, overhead, profit
2. Only where the part allows that split
3. Financial statements
4. Turning these down can put you behind

Move it forward without disclosing more

Do not simply fill in the cost breakdown and send it back. What returns is one line, that the material cost is too high, and from there begins a round of demands to break it down further and show your basis.

Opening your costs wider at that point only adds work. There is something else to hand over instead. Where to change what, and how much it takes out of the price. Shape, material, tolerances, order quantity, packaging and transport, payment terms. This is the form a Japanese buyer takes in most readily, and it has a name: value analysis and value engineering.

It is also your answer to open book costing, the name your customer may use for full disclosure of your costs. Do not widen the disclosure. Hand over the way down.

If you do decide to send it, take something in return. Not money. A firm quantity. A commitment over a period. First call on the next project.

The fact that a Japanese buyer wants a long relationship is usable here. That is what they were checking when they asked how steady your business is. Where the other side wants a long-term agreement, the length of it is something you can set a condition on.

In practice, saying that you cannot send it moves the talk less far than saying you will send it, and here is what you want in return.

That instinct not to send is right. Disclosure costs the seller, and the pull between a buyer who wants it and a supplier who does not is the price negotiation itself. Some requests you are free to turn down. Your own suppliers’ quotations, a cap on your profit, the prices you give other customers: those three are excessive. Financial statements are not.

Refusing the cost breakdown itself only puts you behind where the part allows a breakdown and your competitors are sending theirs. And if you do send it, do not go further into disclosure. Hand over the way down instead, and take a quantity, a period, or first call on the next project in return.

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