Feature Article Trust, Surcharges, And Communication
by Patrick McCrevan, B&L Information Systems O
ne of the most common questions casting buyers have about their costs is what are the
various reasons and ways surcharges are applied to the final casting price. Surcharges come in different
configurations. In the investment casting industry, they fall in two general categories: energy and metal. Energy surcharges are not as common as metal surcharges. Energy surcharges are usually calculated as a percentage of the price of the casting but can also be configured based on the weight of the casting. Energy surcharges have been deployed in the past to offset regional transportation or energy supply surcharges imposed upon investment casters by local municipalities or freight companies. Alloys used in investment castings and their costs vary dramatically (often from month to month), which can make pricing extremely difficult. The cost of producing the casting should be internally managed by the facility as this part of the process should not change very often. However, material part of the price is what can differ - wildly - based on the selected alloy and its market price for that period of time. Buyers and sellers of castings should endeavor to be as transparent as possible about these issues, especially with the metal market price quotes available to both parties The purpose of metal surcharges
is to offset the fluctuating costs of metal. The standard procedure is for a base price to be agreed upon, and then a surcharge applied. Somehow, metal surcharges have become one of the least understood aspects of the investment casting business practices. The answer to why may be in the differing business viewpoints. Without metal surcharges, investment casters may lose money (because of increases in metal pricing) and go out of business. With surcharges, buyers no longer know what the price of a casting will
18 ❘ February 2020 ®
Figure 1
be on delivery, as the invoiced amounts can fluctuate. Additional complications arise when you consider there could be different policies and calculations on the part of the seller at play. There are two sides to every surcharge: the applier of the surcharge and the payer of the surcharge. Most of us are familiar with this idea as we see it on our own utility bills and gasoline pump costs on a regular basis. However, as consumers, many of us simply pay that surcharge and accept it as the cost of getting what we want. The same can be true for casting buyers, but when you consider today’s electronic information processing in business, the picture gets a little bit cloudier. Some buyers’ accounting systems have difficulty in reconciling the price they placed on their purchase order with the invoiced amount—
including surcharges—
coming from the investment caster. This type of misunderstanding can result in a delayed payment of an invoice, multiple emails and/or phone calls to resolve the issue, and sometimes, a weakening in the trust between buyer and seller. To add fiscal structure to the example, this means the purchase order in the accounts payable environment for the buyer states the casting should
cost $795, but the invoice coming from the investment caster states the casting price as $835. The $835 includes the additional surcharge(s) as the investment caster has applied it. Through the use of modern enterprise resource planning (ERP) and invoicing practices, there are several options to help keep the purchase price and surcharge information clear for both buyer and seller. It can be as simple as typing in a line item explanation or checking a Box in the software system (Figure 1). From there, it’s a choice of
invoicing type preference. Two
commonly used invoice types are: • Invoicing casting with surcharge via line item: The invoice sent to the casting buyer will have several line items on it, one line for the casting price of $795 and another line item for the additional surcharge amount of $40. This format may allow the invoice payment to occur more smoothly, but questions may still be raised if the buyers’ Accounts Payable staff is not aware of these additional charges.
• Invoicing surcharges separately: Some investment casters will send the invoice for the casting at the price of $795, but “save up” all surcharges incurred over a set period
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