Roll Forming Raw Material Cost: Transparency Pays

OEM projects can be hectic. Your main concerns are likely lead time, reliability, quality, satisfying your customer, and controlling manufacturing costs.

The nuances of why raw materials cost a specific amount are probably not something you think of often. 

But when it comes to cost effectively managing raw materials, wouldn’t you rather work with a custom roll forming corporation that discloses 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 as well.

So, when you ask your manufacturer how to reduce roll forming raw material costs, make sure you're getting the full answer.

Your Roll Forming Company (Should) Know How to Reduce Raw Material Costs ...

There are three factors that affect roll forming costs:

• Setup Time -- the amount of time it takes to insert and remove the roller die tools from the roll forming machine
• Run Speed -- the speed at which you can feed metal through the machine
• Materials -- the raw materials needed for the project

Of the three, roll forming raw material costs make up the biggest expense – anywhere from 40-80% of the final manufacturing cost.

What is the biggest factor in raw material costs? For a lot of industries 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.

Instead, it should be the duty of roll forming companies to divulge raw material prices openly and honestly.

The share of part cost that raw material contributes depends on:

• The amount of metal in the part
• The type & thickness of the raw material
• How much scrap is produced in the process
• Metal market conditions

Falling Prices Slow to be Passed Along

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 the 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

Let’s face it: Once you have a complete understanding of a sheet steel supply chain, why should your vendor try to hide anything? Your roll forming company should be performing raw material cost analyses on a regular basis and sharing that information with you. 

Roll forming companies should practice transparency with customers by offering a structured quarterly review process as part of their standard roll forming service package. This includes:

• Current market trends
• Consumption rates and inventory levels
• Bids for material to cover the next production period
• Steel mill lead times

After many years of practicing these reviews, you and your roll forming company will know each other very well, and you'll have a custom solution to keep your roll forming raw material costs down. 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.

Benefits include:

• Lower investment in inventory
• Reduction in administrative costs
• Better logistics management

Raw Material Costs & Inventory Management

When done correctly, under the guidance of an experienced partner, metal roll forming is one of the most efficient and cost-effective methods of metal shaping. Get more information on roll forming raw material costs and inventory management best practices. Download our free guide to Streamline Your Roll Forming Costs:

(Editor's note: This article was originally published in March 2018 and was recently updated.)