Raw material sourcing issues can have a significant impact on the overall supply chain. Volatility and price fluctuations involving raw material markets create a trickle-down effect that touches every sector. COVID-19 has affected industries more intensely and for a much more extended period than ever anticipated. With an approximately 18% higher Raw Material Price Index last year as compared to 2020 and material prices averaging up due to prolonged instability, despite analysts expecting some stabilizing this year, suppliers would be wise to prepare for the potential of future price increases and volatility.
Raw Material Issue
The beginning of the coronavirus pandemic saw a decrease in demand for most raw materials as consumers and business owners alike shifted their focus to keeping themselves, their families, and others safe by staying home. With diminished demand came decreased production. This, combined with supply chain disruptions and economic instability, has resulted in upheaval and increasing market prices for raw materials. For those suppliers closer to the bottom of the supply chain who depend on raw materials as a large portion of their overall costs, lack of access to cost-effective raw materials can be devastating.
The procurement of raw materials and part sourcing can create an unwelcome disturbance that is not limited in scope. The following industries are just a small number of examples of the widespread impact of problematic raw material sourcing:
- Industrial equipment
- Oil and gas
The first step to decreasing the impact of rising raw materials costs and shortages is to create a snapshot of your sourcing strengths and vulnerabilities. In determining the actual raw materials used in part production and how that corresponds to demand for parts, you can better forecast your comprehensive material requirements.
- Financial modeling. Procurement departments that are skilled at in-depth monitoring of expenses and evaluating any inherent risk, limit, or variation possibilities enable the broadest hedging options.
- Intensive review of the supply chain. All stages of the supply chain should receive careful consideration to minimize waste, evaluate raw material sourcing locations, and analyze the balance between sustainability and value, with the goal of creating cost savings over time.
- Measurability and sustainability. Leading companies are enacting more environmentally friendly techniques like new recycling methods or reworked product modifications that take both organizational reputation and cost into consideration.
Additionally, OEMs lessen the burden on the part supplier by capturing the contract manufacturers’ raw data for each part. This allows OEMs to better forecast the raw material requirements, allowing for the timely purchase of what they need. Doing so can result in the following:
- Better pricing from suppliers
- Favorable contract terms for procurement departments
- Improved efficiency in supply chain operations
- Shorter lead times for receiving raw materials
Finally, scrap materials can be a significant cost, particularly for larger components. By modifying parts instead, companies can maximize material yield and save on scrap metal expenses. Additionally, another way to cut costs is to consider changing the type of material used if the current material is in high demand or requires additional steps to process.
Looking to the Future
Creating a greener economy starts with business leaders who embrace a futuristic vision and adopt stewardship measures. Traditionally, OEMs, contract manufacturers, and suppliers have looked to the past or to guesswork for forecasting raw material demand in the future. However, choosing to better understand the supply chain and the raw materials used in products, then sharing that information with the sources of those materials, allows OEMs to improve their cost of doing business both now and in the future.
Metal Craft Spinning and Stamping has over 56 years of experience and has grown to produce thousands of items for supply to customers across North America. With a commitment to exceeding our customers’ expectations through quality products and innovation coupled with on-time delivery, we can provide precise, accurate metal parts to fulfill your project requirements.