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If you sell to a Japanese company
You sent your cost breakdown. Then nothing comes back.
Or a question arrives about something you thought was settled. Where does that material cost come from. How did you work out that machining time.
You cannot see what is happening at the other end, so it feels like you have been left there.
I wrote about why a Japanese buyer asks for a cost breakdown in an earlier piece. This one is about what happens after you send it.
I have spent twenty years buying for a large Japanese manufacturer. I received those quotations, and I was the one who circulated them inside the company.
- You sent a cost breakdown and no reply has come back
- Questions arrive about points you thought were settled
- You do not know who is reading your quotation
- What a buyer checks your cost breakdown against
- How to write it so that fewer questions come back
The silence is not about you
You are right to feel left there. But the reason is not the quality of your quotation.
The buyer who asked you for the cost breakdown does not make the decision. And once the amount is large, no single manager makes it either. The bigger the amount, the more people and the more departments join the approval.
So going over the buyer’s head to their manager does not work.
The reply is slow because your quotation is passing through many pairs of hands.
You may also hold back from chasing it, in case chasing damages the relationship. In practice, asking how far along the approval is does not change my impression of a supplier, either way.
It is read by people who have never spoken to you
What a buyer wants to know is whether the amount is reasonable. To find that out, they read your cost breakdown line by line.
You cannot see the order of that checking, or how fast it goes. When your document arrives, the first thing a buyer looks at is one number. How far the total sits from the target cost. They take hold of the size of that gap first. The lines come after that.
Then your figures are set against three things. All three sit outside your document. The first is the estimate the buyer built before asking you to quote, a should-cost estimate. The second is what competing suppliers actually charge. The third is what the same part cost last time, or what the equivalent part cost on the previous model.
- Material cost
- Processing cost
- Overhead
- Your profit
- The buyer’s own should-cost estimate
- What competing suppliers charge
- What the same part cost last time
- The target cost already set for your part
Take care here. Moving some of your profit across into material cost, so that the split between your lines looks tidier, achieves nothing. The buyer checks each line for whether that cost is reasonable.
How far your figures are believed depends on who sent them. The length of the trading history, and the record behind it, change how much you are trusted.
Your quotation is not read by the buyer alone. Other departments read it too, and they have never spoken to you. Sometimes it is attached exactly as you sent it. Sometimes it is summarised. Sometimes it is rebuilt into a table that sets you beside your competitors. Whichever it is, the reader often does not know you.
In a Japanese company, the decision to use a supplier travels as a ringi, a document circulated for approval stamps before a decision is made. Your cost breakdown is attached to it. That circulation needs an article of its own.
Two things follow. Why the reply is slow. And why a question comes back about a point you thought was settled. If anybody raises a doubt while the approval is going round, that doubt travels back through the buyer and reaches you.
Write it for someone who was not in the meeting
So write your cost breakdown not as a document for the buyer, but as a document for someone who does not know you. There are three things to do.
One. Make each line clear. Say in one line what that cost is for.
Two. Keep the units consistent. Per piece or per lot. Which currency, and the exchange rate of which date.
Three. State the assumptions you made. The quantity you assumed, the date you took the material price from, the lead time, and the trade terms.
Write these properly and your case stops fewer times. It stops fewer times because the buyer can then explain a doubt inside their own company. It is resolved there, instead of travelling back to you.
When you are asked to explain your price, the buyer is asking where the basis for that price comes from. Answer with what each line is built on, and the number of rounds goes down.
Still, this is not something to hand over beyond what was asked. Work out first how much detail the other side is going to ask for. How much to disclose, and what happens if you refuse, are covered separately.
Your cost breakdown does not stop on the buyer’s desk. It goes round the company, and it is read line by line by people who have never spoken to you. That is where the slow reply comes from, and the question about the point you thought was settled.
So build your cost breakdown as a document for someone who was not in the meeting. Keep the units consistent, state your assumptions, and say what each line is for. Do that first, and the doubt is resolved in the buyer’s hands and never reaches you.
What I could not check.
I could not give you a number of days. How long the approval takes depends on the amount and on how many departments join it, and I have never seen a figure I would trust across companies. So I have not put one here. What I can tell you is what the document is doing while you wait.
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