OEM projects can be hectic. The nuances of why raw materials cost a specific amount are probably not something you think of often. Your main concerns are likely lead time, reliability, quality, satisfying your customer, and controlling overall costs. But when it comes to that last one … wouldn’t you rather work with metal roll forming companies who disclose the facts about the largest cost component of your parts?
As it turns out, customers reward the efforts of sellers who lay out pricing elements in full view. This is backed by research of general business practices, but most definitely applies to roll formed parts too.
So, when you ask your manufacturer how to reduce raw material costs, make sure you're getting the full answer ...
Your Roll Forming Company (Should) Know How to Reduce Raw Material Costs ...
What is the biggest factor in raw material costs? For a lot of folks that buy formed metal products, pricing is a bit of a mystery in terms of:
- True rolled-up cost of raw materials (mill price + servicing cost + freight + ...)
- How much metal is contained per linear foot of finished product
- How much the metal thickness varies and how that affects you
- How much scrap figures into the final price
These four variables are sometimes responsible for misunderstandings with buyers. Unfortunately, failure to understand how to calculate raw material cost creates an opportunity for manufacturers to make money off you, because you don’t know the full story.
Instead, it should be the duty of metal forming companies to divulge raw material prices openly and honestly.
Just Like Gasoline
Think of the gasoline industry. When the price of petroleum goes up, a seller tends to make the customer’s gas price go up very quickly. But when the price goes down, that change happens much slower. Not cool, right?
Sure, some higher-priced gas remains in the seller’s inventory and needs to be covered cost-wise, but when do they really tap into the lower-priced supply? Is the lower cost passed on immediately?
The raw material market changes all the time in metal manufacturing too. And many manufacturers sprint to the phone to contact customers during times of high cost of raw materials ... but not so quickly on the downswing. Instead of staying true to the market, there may be several pennies skimmed off the top.
One Roll Forming Company's Raw Material Philosophy
Your roll former should be performing raw material cost analyses on a regular basis. Let’s face it, once you have a complete understanding of a sheet steel supply chain, why should your vendor try and hide anything?
We preach transparency with customers by offering a structured quarterly review process as part of our standard roll forming service package. We jointly go over:
- Current market trends
- Consumption rates and inventory levels
- Bids for material to cover the next production period
- Steel mill lead times
- Much more
After many years of practicing these reviews, you and your roll former will know each other very, very well, and you'll have a custom roll forming solution. This understanding helps create a mutual partnership built on trust … the only way it should be!
The Case for Vendor-Managed Inventory
The whole point of this exercise is to help you manage costs and expectations. As we alluded to, the easiest way to do that is with vendor-managed inventory.
This system is ideal for customers with repetitive, ongoing production requirements. Each system is tailored by product demand, but is fundamentally based upon just-in-time delivery and pull system concepts.
- Lower investment in inventory
- Reduction in administrative costs
- Better logistics management
(Editor's note: This article was originally published in March 2018 and was recently updated.)
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