Can you take the risk out of moving exchange rates?

The short answer is yes... at a cost!

If you are considering importing because of a few cents variation in the exchange rate make sure you have considered the full effect on your business model.  

Many people consider the most obvious risk.

You took advantage of a favourable exchange rate and bought a container of product at a great price in Asia.  However in the time between placing the order and making your payment to the supplier the exchange rate has moved again. Now when the product arrives at your warehouse it has cost you as much as product from your regular supplier.  And to make matters worse, the quality of the product you bought is sub standard!

There are finance tools you can use to avoid some of these problems but make sure you consider the other risks of buying because of exchange rate variation!

 The most common problem comes from the disruption it causes in your supply chain.  If you are not building a business based on the consistent quality of your products this may not be an issue for you.  However if quality is important switching between suppliers in various countries at short notice to gain a few dollars is usually not worth it.  You will create serious risks to your product quality.

There are two main reasons for this

1.       When a supplier knows you have only placed an order today because of a small change in the exchange rate and tomorrow you will be buying elsewhere their incentive to get the quality perfect is low.  Everyone wants to build long term business not fill a single order!

2.       The other risk is that as you see a variation in the exchange rate that makes a certain county cheaper you are under immediate time pressure to place and pay for an order before the currency moves again.  This does not give you the time you need to properly research your supply options.  Without this research the risk of choosing a poor quality or unprofessional supplier is much greater.

We would recommend only moving sourcing or production offshore if your research shows a significant advantage regardless of a 10 cent negative move in the exchange rate.

The best way to avoid this risk is to do your research before you consider the exchange rate.  Then once you have identified the suppliers you want to work with and there is a positive move in the exchange rate you can increase your orders to this supplier.  Many of our clients at Mawson Global use our own teams in Asia to complete this research for them so they can be confident the change of suppliers won’t negatively affect their business.

Once you have identified the suppliers that have this advantage you can look at the options to “fix” the exchange rate.  Your bank or financial institution will have tools available which allow you for a small cost to buy the currency you need to pay for your order at today’s exchange rate.  This is a great option if you are spending large amounts over a long period as you can get the items into your budget and know exactly how much you need to pay for them in several months time.

Can you take the risk out of moving exchange rates?

The short answer is yes... at a cost!

If you are considering importing because of a few cents variation in the exchange rate make sure you have considered the full effect on your business model.  

Many people consider the most obvious risk.

You took advantage of a favourable exchange rate and bought a container of product at a great price in Asia.  However in the time between placing the order and making your payment to the supplier the exchange rate has moved again. Now when the product arrives at your warehouse it has cost you as much as product from your regular supplier.  And to make matters worse, the quality of the product you bought is sub standard!

There are finance tools you can use to avoid some of these problems but make sure you consider the other risks of buying because of exchange rate variation!

 The most common problem comes from the disruption it causes in your supply chain.  If you are not building a business based on the consistent quality of your products this may not be an issue for you.  However if quality is important switching between suppliers in various countries at short notice to gain a few dollars is usually not worth it.  You will create serious risks to your product quality.

There are two main reasons for this

1.       When a supplier knows you have only placed an order today because of a small change in the exchange rate and tomorrow you will be buying elsewhere their incentive to get the quality perfect is low.  Everyone wants to build long term business not fill a single order!

2.       The other risk is that as you see a variation in the exchange rate that makes a certain county cheaper you are under immediate time pressure to place and pay for an order before the currency moves again.  This does not give you the time you need to properly research your supply options.  Without this research the risk of choosing a poor quality or unprofessional supplier is much greater.

We would recommend only moving sourcing or production offshore if your research shows a significant advantage regardless of a 10 cent negative move in the exchange rate.

The best way to avoid this risk is to do your research before you consider the exchange rate.  Then once you have identified the suppliers you want to work with and there is a positive move in the exchange rate you can increase your orders to this supplier.  Many of our clients at Mawson Global use our own teams in Asia to complete this research for them so they can be confident the change of suppliers won’t negatively affect their business.

Once you have identified the suppliers that have this advantage you can look at the options to “fix” the exchange rate.  Your bank or financial institution will have tools available which allow you for a small cost to buy the currency you need to pay for your order at today’s exchange rate.  This is a great option if you are spending large amounts over a long period as you can get the items into your budget and know exactly how much you need to pay for them in several months time.

New Case Study: Mawson Global Enhances Client’s Savings

Organization: Distributor of name brand beverages, snack foods and confections

Looking to Source: Soda bottles

Results:

  • Annual cost savings of more than $200,000.
  • Rapid procurement of multiple sourcing options.
  • Diverse pricing options from a variety of qualified suppliers.

The Objective

For 13 years, our client has been the state distributor for Cadbury Schweppes beverages, which includes Pepsi Cola, Gatorade, Spring Valley and Red Bull. The company also bottles its own line of specialty soda drinks.  The company contacted Mawson Global in order to improve its bottom line by discovering a reliable global sourcing partner to save on the cost of materials for soda bottles.

 

The Approach

After learning of Mawson Global’s proficiency in sourcing materials, our client engaged us to identify reliable global sources for its soda bottle business.

 

Our China-based staff researched a variety of suppliers, along with the company’s product specifications for the bottles, and we were able to recommend reliable suppliers producing the material in several China provinces.

We utilized our proven rating system to identify the top suppliers by marking efficiency levels, reliability and quality. Within a number of days, we presented the client with four soda bottle supplier options from different suppliers in China in our informative, easy-to-read Sourcing Report.

The Benefits

Significant Annual Cost Savings

Substantial Savings: As a result of Mawson Global’s global sourcing expertise, the client selected a vendor that will help it experience an annual cost savings of $200,000.

Outstanding ROI: Because Mawson Global operates on a fee-for-service model; the client only pays once for the process that now will save it significant costs for years to come.

Less Stress & More Flexibility

Multiple sourcing options: Mawson Global was able to identify a number of suppliers to fit our needs.

Future options: Because of Mawson Global’s approach, the client not only has acquired a provider for its current needs, but also has direct access to suppliers for future glass projects.

Comprehensive approach: Mawson Global not only conducted its Sourcing Project to identify the best soda bottle partner(s) for the client, but also conducted our Quicklook analysis, as well as our Research Project.

Quick Results

High Efficiency: Mawson Global sourcing experts conducted a timely and robust search for suppliers that not only could provide the required materials, but also could do so with significant cost savings.

Skilled, professional staff: Our staff in Asia has been with Mawson Global an average of six years, and they have streamlined the process of selecting trustworthy, reliable suppliers that meet our high standards for quality and customer service. This team, combined with our proven supplier ratings system, is why we were able to quickly address our client’s request for global sourcing options for its soda bottle business.

Can you take the risk out of moving exchange rates?

The short answer is yes... at a cost!

If you are considering importing because of a few cents variation in the exchange rate make sure you have considered the full effect on your business model.  

Many people consider the most obvious risk.

You took advantage of a favourable exchange rate and bought a container of product at a great price in Asia.  However in the time between placing the order and making your payment to the supplier the exchange rate has moved again. Now when the product arrives at your warehouse it has cost you as much as product from your regular supplier.  And to make matters worse, the quality of the product you bought is sub standard!

There are finance tools you can use to avoid some of these problems but make sure you consider the other risks of buying because of exchange rate variation!

The most common problem comes from the disruption it causes in your supply chain.  If you are not building a business based on the consistent quality of your products this may not be an issue for you.  However if quality is important switching between suppliers in various countries at short notice to gain a few dollars is usually not worth it.  You will create serious risks to your product quality.

 

There are two main reasons for this:

  1. When a supplier knows you have only placed an order today because of a small change in the exchange rate and tomorrow you will be buying elsewhere their incentive to get the quality perfect is low.  Everyone wants to build long term business not fill a single order!
  2. The other risk is that as you see a variation in the exchange rate that makes a certain county cheaper you are under immediate time pressure to place and pay for an order before the currency moves again.  This does not give you the time you need to properly research your supply options.  Without this research the risk of choosing a poor quality or unprofessional supplier is much greater.

We would recommend only moving sourcing or production offshore if your research shows a significant advantage regardless of a 10 cent negative move in the exchange rate.

The best way to avoid this risk is to do your research before you consider the exchange rate.  Then once you have identified the suppliers you want to work with and there is a positive move in the exchange rate you can increase your orders to this supplier.  Many of our clients at Mawson Global use our own teams in Asia to complete this research for them so they can be confident the change of suppliers won’t negatively affect their business.

Once you have identified the suppliers that have this advantage you can look at the options to “fix” the exchange rate.  Your bank or financial institution will have tools available which allow you for a small cost to buy the currency you need to pay for your order at today’s exchange rate.  This is a great option if you are spending large amounts over a long period as you can get the items into your budget and know exactly how much you need to pay for them in several months time.