Buyers negotiate hard on unit price and then lose the savings three times over in freight, duty, dead inventory and rework. The unit price is the most visible cost and rarely the most important one.
The discipline that fixes this is landed-cost thinking: model the whole chain before you place the order.
The eight cost layers
1. Unit price (FOB or ex-works)
Typically 35–45% of the landed total. Negotiating here has a hard floor — push too far and the supplier recovers the margin by quietly downgrading the fabric.
2. Inland and export handling
Trucking to port, export documentation, customs clearance at origin. Usually small per unit, but easy to forget.
3. Freight
Air versus sea is the single largest swing in the model. Air can be several times the sea cost per unit, and it is justified only when a missed season costs more than the freight.
4. Duty and taxes
Determined by HS classification and destination. Rates vary widely by market, so a quote that looks competitive ex-works can lose its advantage at the border. Always model duty before comparing suppliers in different countries.
5. Quality failure cost
The most under-modelled layer. Include the probability of a failed inspection, the cost of rework or replacement, and the cost of the delay. A supplier at 3% defect rate and one at 8% have very different true costs, even at the same unit price.
6. Inventory carrying cost
Capital tied up in stock, storage, insurance and obsolescence. A very low MOQ that forces frequent small reorders has its own cost; so does a huge MOQ that leaves you holding a year of shade-matched shirts.
7. Sampling and program setup
Sample costs, pattern development, label and packaging tooling. One-off, but amortised across the first order they can move the effective unit cost meaningfully.
8. Internal handling
Your own receiving, QC re-check, repackaging and administration. Real labour hours, real cost.
A simple landed-cost model
For each supplier, build a table like this and fill it with actual numbers, not guesses:
- Unit price (same Incoterm across all suppliers)
- Freight per unit
- Duty and tax per unit
- Defect allowance per unit (unit price × expected defect rate)
- Setup cost ÷ order quantity
- Carrying cost per unit for expected holding period
- = Fully loaded cost per sellable unit
That last line is the only number worth comparing.
Worked example: the cheaper quote that costs more
Supplier A quotes $6.00 ex-works with a 6% expected defect rate. Supplier B quotes $6.60 FOB with a 2% defect rate. On unit price, A wins by a wide margin.
Once you add dual-handling freight for A, its ex-works status, and the cost of reworking 6% of the order, B's fully loaded cost per sellable unit is frequently lower. Buyers who compare only the headline price never see this.
The MOQ trap in reverse
Low MOQ feels like low risk. Sometimes it is. But if a low MOQ forces three reorders a season at a higher unit price, plus three freight events and three inspections, the "flexible" supplier can be the most expensive option on the sheet.
The bottom line
Buy the landed cost, not the unit price. Build the model once and it will change which supplier you choose — and protect your margin for the whole program.
Want us to build a landed-cost comparison for your next order? Contact our team.