How to protect your manufacturing business from inflationary pressures?
Sourcing has become a significant challenge for process manufacturers. As raw materials and ingredients cost is expected to rise in 2023, companies must take preemptive steps to protect their businesses from inflationary pressures. Inflation of material costs, transportation, logistics fees, and the pressure to meet demand at any expense has created an environment where operational efficiency is paramount.The significant fluctuation of raw materials cost is mainly due to geopolitical instability, increased demand for certain materials, and limited availability. Inflation is also an ongoing economic reality that can have far-reaching implications for process manufacturers.
Higher costs can impact their bottom line and lead to less competitive products. Buying in bulk when prices decrease may also result in overstocking and increased storage costs.
Best Practice Strategies to Proactively Tackle Raw Material Sourcing
To proactively tackle raw material sourcing, companies can adopt the following best practice strategies:
DIVERSIFY THE SUPPLIER BASE
Relying on a single supplier can be risky, leaving companies vulnerable. By diversifying their supplier base, companies can spread risk and ensure quality materials. Identifying multiple suppliers to negotiate better prices and terms is key, as well as investing in nearshore sources to reduce reliance on foreign countries. Companies with regional diversity fared better during supply chain disruptions than those with suppliers in one region. However, dual sourcing may increase costs, as 43% of respondents noted it to be a top constraint (source: Deloitte, Sept 2022).
DEVELOP STRONG SUPPLIER RELATIONSHIPS
Manufacturers must build strong, trust-based supplier relationships for successful raw material sourcing. Regular communication and collaboration can help identify cost savings and process improvement opportunities.
EMBRACE TECHNOLOGY AND DATA ANALYTICS
Leveraging technology including tools such as supplier/procurement management, MRP, and analytics dashboards can help optimize raw material sourcing strategy, providing real-time visibility into supply chain performance.
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