How BLK Assesses Cost

QUALITY – COST – SERVICE DELIVERY ARE THE FOUNDATIONS OF OUR RATING CRITERIA.

Here’s how we specifically assess “Cost”.

A supplier background check must go beyond the mere credit report, which is readily available for the vast majority of the business anyway and does not give a true reflection on the actual operational profile of a company.

Standard credit reports fall very short of evaluating a business’ quality, its positioning in relation to cost and, most importantly, service delivery.

For this reason, BLK has developed a proprietary evaluation method, currently used as a reference standard within the commodity trading and chemical manufacturing industries and validated on hundreds of clients already.

The BLK Rating, which covers in detail not only financials but Quality, Cost and Service Delivery, with a deep scrutiny on companies’ environmental footprint as well, paints a comprehensive picture of a business’ real position and capabilities.

In this article, we’ll look specifically at how BLK assesses Cost to build the overall company rating.

Cost is a mix of multiple factors. It’s not merely “how expensive (or cheap) is the specific product (or quote)”. It’s about a business’ overall approach to pricing and its positioning in respect to that.

1. Average gross margin

The first item we look at when evaluating cost is the company’ average gross margin in the past 3 years. This gives a good indication on whether the company falls within the average for the industry, above or below, and in which quartile.

An average, constant gross margin in the bottom quartile, means that the company is positioned aggressively in respect to pricing and therefore not only the specific product, but their whole range is likely to be competitive in absolute terms.

 2. Price vs platform

It is also important to look at the price of the specific commodity compared to those of other suppliers on BLK.

We pride ourselves of being the “Online Spot Market” and as such we drive strong price competition from vetted suppliers all over the world. A company’s price may be competitive for a specific country but fall short when compared to that of overseas competitors.

We take into account the global landscape, giving buyers a feel of how the supplier stacks up internationally.

3. Average price vs index

To complement that, we also compare the specific price of goods to that of the commodity index (whenever applicable).

This way, we get the full picture, not only via the benchmark with the rest of the private market but with the institutional one as well, comparing the BLK supplier rates’ with those achieved by the movers of huge volumes such as investment banks and blue chip trading houses.

4. Credit Terms

It’s not just about “how much does it cost” but also “how much flexibility do I have for my payment”.

Suppliers that offer credit terms and payments in instalments as opposed to pre-payment only, are ranked higher than those who don’t.

BLK acts with a buyer-centric approach and the easier supplier make for a buyer to purchase, the higher it speaks of their credibility and cost positioning.

5. Price for Specific Order

Finally, we look at the specific quote or price and evaluate it with our team of expert category managers who assign a rating on the basis of their expertise in the international landscape, market conditions and supply-demand knowledge at the specific point in time.

6. Fixed vs Variable Cost Ratio

The ratio between fixed and variable costs for the company gives an indication of how heavy the company’s specific cost base is (in relation to their cost of sales). If the Fixed/Variable costs ratio is relatively low, it underpins a strong dependance from raw materials and possibly a conservative approach to margin.

These are indicators that the company tends to be more competitive than average, and the benchmark with the index and platform average prices for the same commodity, give the full assessment on how aggressive on pricing the supplier actually is.

To find out more on how we assess quality, check out our detailed post.

Do you want to get a free assessment of your company to understand how you position in respect to Quality, Cost, Service Delivery and how you stack-up against your direct competitors?

Contact us!