Raw materials are arguably one of the essential components when manufacturing a product; without them, there’d be no product at all. The cost of raw materials is one of many other costs that constitute the overall manufacturing cost of a product, and it often constitutes one of the biggest (if not the biggest) chunks. The higher the raw material costs, the higher the price. There are two instances wherein a manufacturing business would want to find ways to lower the raw material cost: competitiveness and fluctuating raw material costs.
Reducing Raw Material Cost for Competitive Pricing
However, when several competitors are manufacturing the same or similar products in the market, pricing becomes one of the major factors in competitiveness. So, to have competitive pricing, prices have to be equal to or lower than that of the competition and, subsequently, this means that raw material cost has to be kept low as well to ensure that the company still profits despite selling the product at a lower price. But the firm mustn’t resort to sub-par raw materials that lower the quality of the finished product as it can easily backfire, in these cases, it’s better to sustain quality and find other means of lowering the price or increasing the value or attractiveness of the product.
Reducing Raw Material Cost Due to Unpredictable or Unprecedented Price Fluctuations
The price of raw materials constantly changes due to various factors, depending on the raw material itself (certain raw materials increase in price due to increased demand, rarity, and so on). Most manufacturers set a selling price that already accommodates changes in the raw material costs, as it would be inconvenient also to change the pricing of the product. However, there are times when the increase in raw material cost fluctuate beyond the “acceptable range,” so manufacturers need to find other means to lower the raw material cost.
As such, here are a few ways you can lower your raw material cost without sacrificing the quality of your finished products:
#1 Negotiate With Suppliers
The first thing you should do is try and negotiate with your raw materials suppliers to provide you a better deal to lower the cost of raw materials. If a price reduction is out of the question, there are other ways to go about the dealings, such as asking for better financing terms, package deals with freebies or reduced/zero freight costs, and so on. Just make sure that the deal you’re able to negotiate a deal that benefits both parties to avoid any issues along the way.
#2 Find Other Suppliers
If your current supplier doesn’t budge, it may be time to search for other suppliers for your particular raw material. You may be surprised to find new suppliers that offer the same or even better quality raw material at cheaper rates or with better deals. You can also try hiring a professional procurement company or specialist to do this for you; procurement specialists are skilled and equipped to find the materials and products you’re looking for and at the lowest possible price but within the same specifications and quality.
#3 Buy Surplus
Believe it or not, some manufacturing firms end up with surplus raw materials that they no longer plan on using. This is perhaps one of the few times where even competitors help each other. Try to reach out with your competitors to see if they have any surplus materials on hand that they’re willing to sell or exchange for another raw material that you may also have in surplus quantity. Alternatively, you can check out liquidators and marketplaces where other companies sell materials that they have in surplus quantities such as slit coils, springs, sheet metals, and so on.
#4 Find A Cheaper Alternative
Lastly, you can opt to find a cheaper alternative to the raw material in use. However, when substituting the raw material, it should not compromise the quality of your product. If possible, your alternative materials should even provide better quality or properties.
Lowering raw material costs to stay competitive and profitable can be difficult, but with these tips, it’s quite possible to do so without having to give up your product’s quality.