60% of Small and Medium Manufacturers "Cannot Reflect Increased Supply Costs in Delivery Prices"

Korea Federation of SMEs Announces Results of '2020 Survey on Reflection of Delivery Prices in Small and Medium Manufacturing'

[Asia Economy Reporter Kim Cheol-hyun] Six out of ten small and medium-sized manufacturing companies were unable to reflect the increase in supply costs in their delivery prices. The Korea Federation of SMEs (Chairman Kim Ki-moon) announced the results of the '2020 Small and Medium Manufacturing Delivery Price Reflection Survey' conducted on 500 small and medium manufacturing companies engaged in consignment transactions in 2019 on the 11th.

The survey results showed that the average supply cost increase rate, including material and labor costs, was 6.6% in 2019 compared to 2018. 48.6% of the companies responded that their supply costs had increased, and among those, 59.7% said they were unable to reflect the increase in supply costs in their delivery prices.

The main reasons for not reflecting the increase in supply costs in delivery prices were burden shifting due to economic recession (33.8%), customary price freezing or reduction (31.7%), and the commissioning company configuring products at lower prices (9.7%).

To fairly reflect the increase in supply costs in delivery prices, the most necessary measures were identified as ▲mandatory reflection of raw material price fluctuations in delivery prices (64.4%) ▲periodic surveys on delivery price reflection status (16.2%) ▲introduction of punitive damages system for unfair delivery price reductions (8.4%).

It was also found that 15% of small and medium enterprises experienced unfair delivery price reductions related to delivery prices in consignment transactions. The most common unfair delivery price reduction method was inducing price competition with competitors to lower prices (50.7%), followed by lowest bid through continuous failure to award contracts (16.0%), and price reduction based on additional orders (12.0%). In response, companies mainly ▲accepted without special measures (60.0%) ▲reduced workforce (26.7%) ▲switched to low-cost raw materials (12%), while active responses such as 'refusal to deliver' accounted for only 9.3%.

Kim Ki-moon, chairman of the Korea Federation of SMEs, said, "Recently, with increasing domestic and international uncertainties such as COVID-19 and protectionism, the difficulties of entrusted small and medium enterprises are intensifying," emphasizing, "To resolve the issues of customary or unilateral price freezing and reduction and unfair delivery price reductions, institutional improvements such as enhancing the delivery payment adjustment negotiation system must be urgently implemented."

This content was produced with the assistance of AI translation services.