Raw materials are one of the most important aspects of supply chain management. The type of raw materials used by a certain company depends on the products it offers.
These materials will greatly affect the overall appearance of the product and its quality as well. Industrial raw materials are the type of basic materials that are usually used in the production of a specific product or service. These materials can either be man-made or natural.
Raw materials management is a business process that primarily focuses on securing raw materials with high quality in the lowest price possible. It helps in making sure that the chosen materials will greatly benefit not just the production process but the company as a whole.
Part of managing raw materials is the assessment of the materials to be purchased to make sure that it suits the design of the product to be created. It also involves the analysis of the amount of by-product produced in the process and how it will affect the environment.
Selecting the materials to be used in a certain product requires some research. Individuals who are assigned to purchase raw materials need to determine if their chosen materials have met their standards to assure that they will deliver the desired finished outputs.
Finding the right materials require some time and effort. When importing raw materials, companies should make sure that they comply with the rules and regulations set by the government.
It is the responsibility of raw materials manager to negotiate the lowest price for the materials.
The cost of these materials tends to change constantly due to various factors including ease of acquisition, supply and demand, and availability. Raw materials that can be easily acquired are usually cheaper.
On the other hand, shortage of materials due to war, natural disasters, or political unrest triggers suppliers to increase their costs. Companies with effective raw materials management anticipate these kind of situations and plan according to assure the continuous operation of the business.
The costs of raw materials greatly affect other areas in the supply chain. Raw materials management can help companies manage price fluctuations and understand their effect on the business.
It will also help them understand the risk associated with these fluctuations and develop an effective strategy to deal with the problem.
Raw materials management involves the development of strategies to mitigate risk and keep the costs down.
These strategies include:
• Having a Clear Contract Terms With Suppliers
Companies should make sure that the terms of the contract they have with the suppliers clearly indicate that the cost of the raw materials should be reviewed regularly and explain the situation when this price needs to be adjusted.
• Determining Which Materials Need to Have Commodity Strategy
Companies or the departments that are assigned to purchase raw materials should be aware which materials need to be purchased in bulk. They should also be aware of the trends in the industry regarding various commodities to help them develop future plans.
• Implementing Risk Management Strategy
Companies should develop strategies that will help them deal with various risks associated with price fluctuations. These strategies should tackle unexpected price increase and operational hedges.
Another important aspect that should be covered by raw materials management is the suppliers. Majority of manufacturers often rely on suppliers to get the best materials as possible. Manufacturers that have a good working relationship with their suppliers typically get raw materials in discounted prices.
These suppliers always make sure that they deliver the ordered materials on time. However, looking for the right supplier can be a daunting task.
Raw materials managers need to exert more effort to find one. There is also a need for them to be aware of the opportunities that will benefit the company and minimize any problem that may arise. Since some suppliers tend to adjust their offerings due to the instability of the market, companies should expect this kind of situation so that they can plan accordingly.
Aside from suppliers, raw materials management also includes the awareness of the current condition of the raw materials market. These markets are commonly subject to contraction and expansion.
It is important for companies to identify the current state of the market to prevent them from making decisions that can negatively affect the company.
Raw materials are one of the most important components in every process of production in a certain company.
Poor management of raw materials can affect the overall operation of the business. Raw materials management will help companies deal with various factors that are associated with the production including the price of the raw materials, their suppliers, and the condition of the raw materials’ market.
Effective raw materials management should be able to deal with these factors and allow the company to operate efficiently despite some inevitable changes.