When you compare two supplier quotes, you compare two prices. But your company doesn’t pay prices – it pays costs. The difference between them is where margin quietly disappears.
The 7 components
- Transport and customs. Obvious, but rarely allocated correctly per product. A 2,000-lei freight split “per kilogram” gives a different result than split “per pallet” – and for bulky, light products the difference is huge.
- Handling at receipt. A supplier delivering palletised and labelled costs less than one delivering loose, even at a higher invoice price. Hours at the receiving dock are cost.
- Losses and damage. The rate of damaged or non-conforming goods at receipt, per supplier. If you don’t measure it, you pay it anyway.
- Storage cost. Large minimum lots occupy space and age your stock. A supplier flexible on quantity may be worth a higher price.
- Financial cost. 60-day versus 15-day payment terms is money. So is capital tied up in stock.
- Quality cost. Customer returns, complaints, handling time – often attributable to a specific supplier.
- Yield. In processing, how much finished product comes out of a kilogram of raw material. One yield point is often worth more than 5% of price.
How to build the calculation
You don’t need a new system. You need:
- a clear list of the components you include (and those you consciously exclude),
- simple, documented allocation rules you apply consistently,
- per-supplier data on losses, yields, terms – collected over 2–3 months,
- a tool (Excel is enough at first) that calculates full cost per product and supplier.
Most importantly: the calculation must be redone when freight, exchange rates or terms change – otherwise it becomes an old photograph.
The right question isn’t “who has the lowest price” but “who costs me least to work with, per unit sold”.
If you’d like to see what such a calculation looks like on your data, write to us or describe your situation.