Sharing production savings with a Chinese supplier
Agree a verified starting cost, a funded improvement plan and a written savings calculation against unchanged quality requirements. Specify who approves the results and which orders receive the reduced unit price, including how investment recovery ends. Cambridge China Bridge can coordinate factory evidence through its own staff in China.
Agree a baseline both sides can verify
The factory negotiation guide covers the wider price discussion. For savings sharing, attach a dated baseline to the agreement: the approved product revision, production site, order size, currency, delivery terms and current unit price. Distinguish the selling price from the production cost used to calculate savings.
Check material consumption, labour time, scrap, rework and agreed overhead allocations against purchasing records and actual production runs. Calculate cost per accepted unit, so rejected output cannot make efficiency look better. Agree who can inspect supporting records and how confidential information is handled. If the supplier will not substantiate a cost category, leave it outside the shared-savings calculation.
Define the work and who funds it
Describe the proposed process change, such as a fixture, improved cutting layout or shorter changeover. Record the work owner, approved budget, payment milestones, trial evidence and completion criteria. Separate predicted savings from measured savings. Agree who pays for failed trials, overspending, maintenance and additional verification before work starts.
Choose whether the buyer pays separately, the supplier funds the work, or investment is recovered through the unit price. Record ownership and access to buyer-funded equipment, including what happens if orders stop. If recovery is included in the price, keep a recovery ledger and define the evidence that ends the charge. Do not count the same investment in both a separate payment and price recovery.
Keep quality outside the savings negotiation
Attach the existing specification revision, approved sample, material requirements, tolerances, packing and acceptance criteria. Use the product specification guide to fill gaps before signing. State that a lower price does not authorise material substitution, relaxed defect limits, omitted testing or unapproved subcontracting.
Approve trial goods against those unchanged requirements and check the process under representative production conditions. Measure accepted output, defects and rework alongside time and material use. Name the buyer's quality approver and the evidence needed for release. Treat a proposed specification change as a separate approval, with its own cost comparison.
Write the sharing calculation and price trigger
Define eligible savings as the verified baseline cost less the verified improved cost on the same basis. Agree which ongoing costs are deducted and how investment recovery is treated. Apply the agreed buyer share to that eligible saving to obtain the unit-price reduction. Keep currency movements, commodity-price changes and volume discounts separate unless expressly included.
Identify the exact purchase orders or production batches that receive the reduced price after the evidence is approved. State how existing orders, work in progress and stock are treated. If investment recovery delays the full reduction, define the interim price and the recovery-completion trigger. Record who approves the revised price, how it reaches invoices and how disputed savings are reviewed.
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Check invoices and the total buying cost
Compare purchase orders and invoices with the approved price schedule and recovery ledger. Use verifying negotiated savings for the wider order-cost check. Agree review triggers for changed volumes, inputs or processes, and require supporting evidence before reopening the baseline. Define what happens if the improvement fails to sustain the agreed quality or savings.
HMRC guidance says tooling provided by, or on behalf of, the importer in connection with imported goods must be included in their customs value. Give your customs adviser the tooling payment and savings agreement before importing. Keep the production saving, investment payments and total buying cost distinct when judging whether the arrangement has delivered a benefit.
Frequently asked questions
How do I verify a Chinese factory's starting cost?
Agree the cost categories and check them against purchasing records and actual production runs. Use cost per accepted unit and exclude categories the supplier cannot substantiate.
Who should pay for factory production improvements?
Agree funding before work starts. Record the budget, payment milestones, ownership, failed-trial costs and any recovery through unit prices. Avoid paying for the same investment twice.
When should the supplier's lower unit price start?
Name the eligible orders or batches after agreed evidence approval. Specify treatment of existing orders and stock, plus any interim price while investment is being recovered.
What if the supplier cuts quality to create savings?
Reject the change against the unchanged specification and acceptance criteria. Require corrective action and fresh verification before approving the claimed saving or releasing affected goods.