How to reduce the cost for the raw material required for the good production in business?

 For every manufacturing business, they require some kind of raw materials. The cost of the raw material is having the direct impact on the profit margin of the business and on the pricing of the product as well.

For example, if the raw material is expensive, the manufacturing cost for the product will be high and this will ultimately leads to the decrease in the profit margin of the organization and the increase in the price of the product.

 And, when the cost of the raw material is low, there will be more profit margin of the organization and also decrease in the price of the  product as well. Because when the cost of the raw material is low, there will be less manufacturing cost. This will ultimately lead the increase in the profit margin of the organization and thus they can manage to decrease the price for the good.

There are several benefit of getting the raw material at the low cost. Some of the major benefits of getting the raw material at low costs are as follows:

  • When the cost of the raw material is low, the manufacturing cost of the product will be low. Thus the profit margin of the organization will be high.
  • Since the low cost of the raw material will decrease the manufacturing cost and thus the company can manage to decrease the price of the product. This will help the customers to get the product at low cost.
  • When the price of the product is low, there will be increase in the sale and thus more profit for the organization.

Overall, low cost of the raw material is beneficial for the company. But the question is how to get the raw material at the reduced cost. Here in this guide, we are listing you some major points that will help the company in getting the raw material at low costs. Some of the tips for reducing the cost for the raw materials are as follows:

Use lower cost substitute material wherever possible

This is great idea to substitute the high cost raw material with the low cost raw material wherever possible. Generally, a product can utilize different kind of raw materials for the manufacturing of the final good. But make sure, if you are substituting any of the raw material, it should not hamper much the quality of the product. Otherwise it will reduce the value of the product which is not desirable. Also, changing the raw material that leads in increase of the manufacturing time as well as labor cost is also worthless. 

Also, change in technology can also help in reducing the manufacturing cost and thus the final profit to the organization.

Negotiation, Negotiation, Negotiation

It is very crucial factor to decrease the cost for the raw material. The level of the profit you can earn on your products depends majorly on the price of the raw material that what the best price for the raw material you can get. You should need to have the good negotiation skill while purchasing the raw material. Ask for discount every time when you purchase the raw material. Also, you should scroll multiple suppliers for the raw material, compare their price, ask for the discount, select the one who is providing more discount or try getting the best offer for the raw material purchase.

Purchase the raw material in off season time

In the case when the raw material can be store for long time, prefer purchasing them in bulk in off season time, when the cost for the raw material is low. For example, in the case, if the cost of any kind of raw material is low in winters, try purchasing them in winters only.

Purchase the raw material in bulk

Yes, this is also a good strategy to get the best price for the raw material. In the case when you are having facility to store the raw material for long time, it is preferred to purchase the raw material in bulk. Larger the volume of the raw material, more will be your cost saving on raw material purchase.

Grab all the opportunities

Time to time, many suppliers might appear in market with great offers on the raw material, grab that opportunity and get the raw material from them only. No matter if they are your regular supplier, just assure with the quality for the raw material and get it from them at lower cost and best price.

Offer for offer

In the case when any of your vendor is your supplier also, give them an offer on your end product for getting the offer on the raw material. For example, if any of your supplier also purchases the end product from you, you can provide them the goods at discounted rates and ask them for the discount on raw material as well.

Provide the facility of warehouse or the distribution service

If it is expensive for your supplier to supply their raw material in your locality, but are having great demand from your area. You can help your supplier with the extra warehouse (If you are having) allowing them to keep their incentives. This will help them in reduction in the delivery, transportation cost. In return, you can ask them for discounted price on the raw material.

Quick payment

Some of the suppliers can provide you best offer if you offer them for quick payment.

Long term agreement

You can also make agreement from the suppliers for long term professional relationship in return of the discounted price of the raw material.

Less wastages

This is the most important point to consider while manufacturing the product. When the wastages of the resources is less, there will be less manufacturing cost and thus the profit to the organization.

 

The bottom line

So these are some tips to reduce the cost of raw material!