- Model version
- 1.0
The formula, in words
- Technical acceptability comes before price. A quote you have marked as not meeting the specification leaves the gap arithmetic entirely, because a lower landed cost does not buy back a requirement, and this page will not average the two.
- One currency, one place, one moment. Every quote is converted at the rate you entered, landed on your floor with duty paid, and priced at the quantity you need. A quote is not comparable to another quote until all three of those are the same.
- Where the Incoterm lands. Three letters decide who pays the freight, who pays the duty and who clears it. This page reads seven of them. It groups EXW, FCA and FOB as quotes where the freight is yours to add, CFR and CIF as quotes where the freight is already inside the price, DAP as a delivered price with the duty still yours, and DDP as a delivered price with the duty theirs. FAS behaves as FOB here, CPT and CIP behave as CFR and CIF, and DPU behaves as DAP, so they are not offered separately.
- The minimum order. If your quantity is below a supplier's minimum you buy the minimum, so the goods figure uses the minimum and the per unit figure still divides by what you need. The surplus is real and it stays in the number.
- One off charges spread. Tooling, samples and first article testing are paid once and divided by the quantity. This is the single line that makes the gap depend on how much you are buying.
- Payment terms are priced against the day the goods land. Money paid before the goods arrive costs you at your cost of money for the days in between. Money paid after they arrive is a credit and shows as a negative. Paying on arrival costs nothing, which is the natural zero of the whole calculation.
- Freight, duty and destination charges are not financed. They fall due within a few days of arrival, so the carry on them is a rounding error next to the goods, and pretending otherwise would add three assumptions to buy nothing.
- The quantity chart. Its quantity axis is spaced by ratio rather than by difference, so that the small quantities are readable.
where G is goods, p unit price, r the exchange rate, Q quantity, and Qmin the minimum order.
where D is duty, F freight, and rD the duty rate. Duty is zero on a DDP quote.
where O is the one off charge and O0 tooling and testing, not scaled.
where C is finance, i the payment index, si the payment share, rC the cost of money, da the arrival day, and di the payment day.
where A is destination cost, Cc customs, Cp port and inland, and Cu unloading.
where T is landed cost.
where pL is cost per unit and Qn the quantity you need.
A worked example
Quote A is 82.00 yuan a unit at 7.25 to the dollar, so 11.31 a unit, and 5,000 units is $56,552 of goods. Freight to your port is $2,800, and duty at 5% falls on the goods plus the freight, so (56,552+2,800)×5%=2,968 dollars. Customs entry and inland add $1,350, and the tooling adds $6,000, which is $1.20 a unit at this quantity and would be $6.00 a unit at a thousand.
The terms are 30/70, 30% with the order and 70% at the bill of lading. The goods leave on day 35 and land on day 67, so 30% of the money is out for 67 days and 70% is out for 32. At 12% a year that is 56,552×12%×(0.3×67+0.7×32)÷365=790 dollars.
Add the rounded lines: 56,552+2,800+2,968+1,350+6,000+790=70,460 dollars, or $14.09 a unit.
Quote D is $13.70 a unit with no tooling and no freight to add, which is $68,500 of goods, $3,425 of duty and $1,350 of landing, so $73,275 before terms. Its balance falls 90 days after the bill of lading, on day 135, and the goods landed on day 77, so the supplier is financing you for 58 days: 68,500×12%×(77−135)÷365=−1,306 dollars. Quote D lands at $71,969, or $14.39 a unit.
Quote A and Quote D sit 30 cents a unit apart, $1,509 on the order. Take the payment terms out by setting the cost of money to zero and the same two quotes read $13.93 and $14.66, so the gap more than doubles. The terms on Quote D are worth 42 cents a unit, and they are the reason a comparison done on unit price does not survive landing.
What this does not model
Insurance, inspection and third party testing at origin, demurrage and detention, the timing difference between paying duty and reclaiming it, tariff preference under a trade agreement, the cost of quality and of the rejections you have not had yet, the value of a shorter lead time, exchange rate movement between today and payment, and the probability that any of these quotes is wrong. It also assumes one shipment per order and one lane for every origin, which is the assumption most likely to be untrue in your case.
Check it yourself
Set the quantity to 1,000. Quote A's tooling is now $6.00 a unit instead of $1.20 and Quote A lands at $22.32, above Quote B. Quote B, which looked expensive at 5,000, lands at $15.71 because it carries no tooling, no freight and no duty of yours. Nothing about either supplier changed.