It is important to know WHAT we are offering and on what the conditions are. These features are split over 4 parts. They are the following:
- Price bid itself
- Products & lead times
- Supply structure
- Price and Trump tax
Price bid itself:
Earlier on I sent you as an attachment the Price Bid in Excel, which we filled out. Since I am sure you will receive a lot more emails, data and copies, I am also making this price-bid available here below to view it or download it.
The price bid in the excel sheet itself is not that spectacular. Most fields that are entered are data that lead to the final price. When we take the EXW price as a starting point, add freight costs, warehousing, duties and margin on top and you come to the DDP / EXW USA price.
The spread of these costs, or percentages that come on top of the EXW price are not based on estimates. We supply to MLCO McCook for a number of years already, so we have an accurate image of how the costs are.
We are bidding on 24 products today. Not to anyone’s surprise these are mostly stainless steel items, or items that can potentially be produced in steel.
It is also no surprise that we are very interested in the cutlery business, which is the biggest portion of the products Sola can supply.
Very important to know what we are offering in respect to the specifications you have given us.
Let me give you an example: 044207719 Dinner fork
In the Excel bid sheet in section 4b you can see the price for this item.
But we all know that this is an Alessi design. We discussed the rights issue back in January that may come from this when it is copied. What we are offering you with this price is the exact same fork. Same dimensions and specifications. But we have not put the Alessi name on it, as we are obviously not Alessi.
Later we can discuss what text, logo or code you want on the item.
Another example is the 044207743 Bar Caddy
Last year we received a sample of this item from you. This is such a specific product, especially made for Delta that we can offer our price, but we cannot send you a sample. We are not the supplier of this item right now, and this is not an item that can be made very quickly. However, we certainly CAN produce a copy or a similar version of this item. That is what the price represents in the bid sheet.
And this goes with most of the products. We can copy them. We can make small changes to them. We can all produce them, but we need your input on which items we want to proceed with, how and when. In the sample box you will find a list of all 17 items I have put in the box, and you can see what is an exact copy or what can be seen as a reference sample to check our level of quality. But the prices are based on the specifications you have sent me earlier on.
In the bid sheet I have put the same 100 – 120 days lead time for any product. This is a number that is subject to change. It really depends on what we decide to do. It also depends on when Delta wants to start with this project. If the pressure on lead times need to be increased, we have that option.
I completely understand the off-the-shelf idea, which should minimize the amount of work and time to create something new. I can totally understand that this is important for products like plastics or glass. Moulds can go in the 10K-100K-price range of more. For cutlery that is minimal. A mould is important of course, but the costs for one mould is roughly $500,-
It means that for cutlery you are 100% in control what design you want as it is easy to make and quick to make any changes. The mould needs to be made anyhow.
We are quoting you both EXW and DDP.
EXW – or better Ex-Works China is officially an Incoterm where the supplier produces the product, packs it and make it ready for further transport. That is right till the doorstep of the factory. It means that the buyer or his/her logistics service provider needs to collect the goods and distribute this further.
That is the official description of EXW, but I am not sure whether this is exactly what you want to do, or whether you want us to deliver the goods to a station/harbour close to the factory where your partner gets access to the goods.
EXW Supplier US Warehouse is basically DDP.
For the record DDP is where the supplier produces the goods, ships them to a certain pre-destined place and take care of all duties and transport to that place. That is why DDP is always followed by a place/city. In this case we supply DDP McCook, Il.
To be very clear: We will supply your product all the way to the warehouse of MLCO in McCook, Il.
As soon as your product arrives there, it will be stored by MLCO in a special section that is reserved for Sola. It will remain property of Sola, until Delta send us or MLCO a call-off. That is when the actual supply takes place. It can happen in real life that one pallet of product is moved from one place to the other, and that is it. It can also happen that only a small change in the MLCO system will make a switch from Sola stock to Delta stock, where basically the product does not even move places.
We are not going to distribute partial shipments to your outer stations. If San Antonio or any other location needs 5 cases of knives, then MLCO will do that for you. That is part of the business construction Delta has with MLCO.
It also means that we will keep your buffer stock at MLCO in McCook, Il.
This is a business model we already successfully do for other airlines too. The communication and business relation with MLCO and Sola is good. We are regular visitors there and we all know each other.
Options with MLCO:
Supplying goods to MLCO is simple, and for them taking 100 cases of spoons from our stock and distribute them into your network is something they do on a daily basis. But we have much more options making use of this network. I already mentioned duties. Once our goods are imported into the USA we need to pay a certain amount of duties. These vary per HS-code. If your logistics network will be set-up correctly duties are not needed to be paid for your intercontinental product.
Plus MLCO has set-up a new warehouse in Holland. We have plans to visit this facility in two weeks from now. It is a waste of time and money for goods that are needed in Europe, to first ship them to the US, and then bring them half-way back to Europe for flights back to the US. Same goes for your Asian stations. Why dragging much product halfway the globe if it needs to go back to the starting area?
Making use of the business model MLCO can set-up, this can bring additional advantages for Delta. But, this is not something Sola or MLCO can do single-handidly. This needs to be done in cooperation with Delta. And I do not want to give away all the advantages MLCO can offer right now, but we can certainly discuss this together. My advice is to at least explore the options. MLCO can much better explain how this works than I can. But Sola can be part of this for sure, and that is how we mutually come to a business model where things are clear, better organised and advantageous for Delta.
Price and Trump tax:
With this RFP you have requested to give an in depth view of how the price is build up. The flow EXW China – Freight – Duties – Storage – Margin – DDP is a pretty normal split to come from one to the other.
However, comparing the prices we quoted in October 2019 versus these prices is a different thing. We are now facing less volume, which does have its impact on certain products. Some items have indeed become more expensive, and some have stayed the same. It really depends on which factory we are using to get the product from.
Plus there is ofcourse the Trump tax. A 15% Trump tax was imposed on many items we bid on today. I really do not want to start a whole discussion on whether this additional tax is righteous or not. We stay as far away as possible from politics. But it is something we have to deal with. Whether we like or dislike the Trump administration – that is not up to us, nor what to think of all this.
What we do think is that a 15% additional tax cannot be absorbed by the supplier alone. Nor do we know for how long this will be in effect. This 15% was added on our products December 2019 after we quoted for the first time. Later this was extended for another period of time.
There are ways to avoid having to pay this tax, and that is to make use of the MLCO – supply – structure, I described here above. And I emphasize again that this is not something we can do alone. We need to do this together. I have been in contact with MLCO The Netherlands, and they are willing to explain and show how this can work. This is not a shady, grey-area type of construction. It is a legitimate process, but we need to come to agreement on how we will do this in future together.