Logistics/Supply Chain/Pricing of end product

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Question
Mr. Madhavan

I am starting a small production business. I use a tropical vegetables as raw materials. This raw material is imported by local importers and i buy from distributors. My monthly usage is
1 palet (60 boxes).
Main problem: I am located in Montreal (Canada, Quebec), they import from abroad and is paid in $US , this causes a lot of variation in the price of the raw material.
The only way for me to manage this variation ($CA 55 to $CA 72) was for me to cut as many middlemen as possible but i did not have any success yet.
I buy only one palet at a time (it is not a big bargain position). How can i manage this ? i need a better control on the price of my material?
How can i manage my supply chain with the just ONE palet(60 boxes) to do the pricing of my end product? if i do not control the price of the raw material

Thank you

Answer
Hi and Good day

Like you mentioned, you do not have much bargaining position with your suppliers as you buy only one pallet. Whereas you can take a historical analysis of pricing per pallet of raw materials and statistically arrive at a median price (list all the purchase price for the last 20 and take a median or middle value) to understand where the price stands most of the times. This is not a great method but will give you a perspective on the price variations. From here you can add certain margins and arrive at the supply cost.
In parallel, you can try to speak to your supplier and try to get a fixed pricing for a period of time. You purchase order quantity at any time will be only 01 pallet, whereas the purchase contract can be for a period of six months. If they agree, then whatever happens, they need to supply at that price. Check if this can be done.
Alternate option which is a primitive way - is to take the last 20 historical prices and use the highest value to arrive at the supply cost. Here the challenge is the end user price may be high and you might lose on sales opportunity.

All the very best

Thanks
Shaju

Logistics/Supply Chain

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Shaju Madhavan

Expertise

Questions related to Logistics/ Transportation & SCM. B2B services/ Online Freight Exchanges/ IT Solutions like TMS/ WMS and Inventory Softwares. Technology applications like GPS based tracking solutions. Logistics services related questions like distribution planning and optimization, cost reduction & six sigma, inventory reduction & accuracies, WH design etc. In additions, questions on technology, B2B, B2C, Startups, ERP, Development and implementation, Merger & Acquisitions etc can also be queried.

Experience

17 years of experience in Project Management, Logistics/ Transportation and SCM in India. Direct Implementation experience include - Logistics Business Consulting (Warehousing, Fleet Management, Distribution etc) - Inventory Management and Inventory Accuracies - Distribution, Network, Fleet Optimization - RFID, Barcode implementations - Business Plan, Business case, Startups, Advisory - Demand Planning & Forecasting - Supply Chain Design - 3PL/4PL services - Indian Logistics space - Cost reduction & Six Sigma - Logistics Contracting - IT enabled Logistics BPR - Logistics IT solutions like TMS/ WMS etc - Technology Applications deploying GPS/ GIS based applications - MR and MI reporting in this space

Organizations
- Thermax Ltd - indiatransportal.com - one of the first b2b for transportation in India - infreight.comn - b2b and online freight exchange - Infreight Logistics Solutions Ltd - Consulting/ Technology and Operational Solutions Company

Publications
http://www.businessgyan.com/me/smadhava

Education/Credentials
Graduate Engineer with executive general management from IIM, Bangalore

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