In addition to the delays of the Pandemic, climatic variations, international wars and other factors have been added that have affected the cost and supply of raw materials.
All large companies are seeing how managing their supply chain can help them have more efficient operations, reducing costs and making strategic market decisions.
The increase in prices of non-edible materials of 117% since 2000 1 has generated that the first reaction of many industries is a price increase that in reality has been less than proportional to the increase in their production costs, which is why absorbing part of that volatility and assuming lower margins, which puts the sustainability of these industries at risk.
New approaches
To have tangible solutions, all companies should incorporate at least the following:
1.Financial Modeling taking as input the price of raw materials
Financial projection models should also have tools for tracking cost, projections under various scenarios and risk using data analytics. Purchasing departments must become more agile and become increasingly closer to the financial derivatives markets that offer hedging on raw materials.
2. Thorough interrogation of the Supply Chain
An area of focus may be the proximity of the sources from which raw materials are obtained and the capacity for their continuous supply. Companies must consider the current cost they have of accessing capital , which allows them to have those inputs necessary to operate for a prudent time, in this way, excess raw materials should not be discarded. At this juncture, it is more important to continue operating than to optimize inventory or supplies.
3.Have immediate and alternative action plans
Technology undoubtedly allows processes to be made more agile, so having tools that capture relevant data to make informed decisions becomes critical. Given so much volatility, what was a viable option a week ago may no longer exist today. For this reason, even internal approval processes must stop being pachydermic and move to an empowerment scheme where leaders’ decisions are made without friction in the shortest possible time.
Ideas taken: Tracc Blog “Rising costs of Raw Materials – Forging Strategies to address impact”.
