If your company makes a product, whatever it may be, then your raw materials will be one of your biggest expenses and most consequential pulls on your profitability. So, how do you reduce material costs without impacting the quality of your final product or altering what your customers have come to expect and rely on?
Smaller companies often feel overlooked and under-appreciated by the larger suppliers they deal with. Many don’t have the clout to object to the supplier’s unfavourable terms or treatment. You don’t need to fall into that trap. Below, we’ll explore some options to help you keep your margins intact and manage cash flow.
How the COVID Pandemic has Affected the Cost of Raw Materials
Through most of 2020 and well into 2021, raw materials prices have risen in New Zealand, due mostly to the disruption of COVID-19 to supply chains and increased demand in China. This has resulted in a significant increase in shipping prices, in turn delivering higher prices for raw materials, if indeed they’re available. The raw materials market has seen substantial increases, which place a significant burden on smaller companies, as the price of raw materials accounts for the vast majority of production costs.
How to Make Savings in Raw Materials
Profits are all about getting the highest price for what goes out while securing the lowest price for what comes in, and the same is true for those who are selling to you. Every point in the supply chain has its own margins to worry about and will go to great lengths to secure a sale, especially in a slow economy. Here’s how you can keep your margins intact.
Use materials more efficiently
The best place to start is to make more efficient use of the materials you already have. When the cost of raw materials is relatively low, the volume of excess material, or “scrap”, may be considered less of a priority. However, material waste can eat into your margins severely when those costs rise. Modifying product designs and altering production methods to better utilise standard raw material units may reduce excessive scrap and its associated costs.
Eliminate unnecessary elements
Inevitably, you will need to balance costs by offsetting some quality materials with some cheaper materials. Striking a balance is key, and you can calibrate your material quality further by focusing on the elements that matter most. Examine your customers’ motives for purchasing your products. Are they buying your products because of competitive pricing, exceptional quality, your uniqueness in the market, or some other reason? By determining what is important to your customers, you can selectively pursue quality materials for the most important elements.
Leverage your suppliers
Negotiating with suppliers is a fact of life for businesses that work with raw materials or rely on the supply chain. Don’t commit yourself to a single supplier or stop hunting for deals. Keep an eye out for suppliers with more favourable costs or services, such as delivery times, financing rates, or shipping costs, and make your other suppliers aware of these advantages. Your goal is to keep your suppliers competing for your business by offering better outcomes than their rivals.
Barter for materials
As a business, you have more at your disposal than just petty cash! You can also exchange excess inventory or surplus service time to secure better deals on raw materials available through the Bartercard network. If your products or services are used by any of your fellow members, you can selectively approach them to barter between your two companies. The exchange rate for two different products in a bartered exchange is the standard retail price of each.
A Strong Network is Essential for a Successful Business
Bartercard is New Zealand’s largest business network, with approximately 10,000 cardholders. Having a strong network is essential for a successful business, creating invaluable connections and partnerships, and attracts new clients and referrals. Joining Bartercard not only gives you access to a unique market of buyers and sellers, but our regular networking events also provide a forum where you can build invaluable relationships across nearly every type of industry. Mixing with industry leaders can give you some great ideas for your business with the right connections.
Your membership of Bartercard will create a highly effective platform to showcase brand awareness, making smart business solutions, with access to a new market of customers. This creates lasting business partnerships, attracting extra sales leading to referrals in the cash economy. It’s all part of the membership! Become a Bartercard member today and enjoy greater access to the products and services your business needs.