Methodology / Price basis

Price basis — definition and counting

A quote on one drawing must be broken into nine comparable items. The total on its own means nothing.

Unit

RMB / unit

Formula

material + machine time + surface finishing + inspection + packaging + tooling amortisation + scrap + overhead + tax

Why suppliers disagree

• Tax inclusive or exclusive: a 13% gap that many quotes leave unstated
• Whether surface finishing is included; anodising and nickel plating are often quoted separately
• Who absorbs material loss: 60% and 85% bar stock utilisation are very different
• Tooling and fixture amortisation: one-off or loaded into unit price
• Payment terms: 60 days is equivalent to a 1% to 2% discount
• Order band: 100, 1,000 and 10,000 units are different businesses

How to collect it on site

• Ask for the original written quote, not a verbal price
• Ask item by item what is included, and write the answer into the contract
• Ask for material grade and supplier; the same grade from different mills prices very differently
• Ask for the price at 100, 1,000 and 10,000 units

The three most common misreadings

1. Comparing totals rather than bases; the lowest price is usually the one with the most exclusions
2. Extrapolating a batch price from a sample price, often in the wrong direction
3. Ignoring inspection cost; full CMM inspection can eat 10% of margin
4. Putting tax-exclusive and tax-inclusive prices in the same table