AT Kearney recently released a short piece on Driving Down the Cost of Raw Materials: A four-pronged approach to managing input steel prices and commodity purchases that had some good tips for managing your metals spend. The report broke your opportunities down into four types:
- Material Cost Recovery
Up to 30% of inputs are unused and considered a waste by-product of the manufacturing process, but can be sold as scrap, melted down, and reused again. In peak markets, this scrap can be worth hundreds of dollars a tonne.
- Sourcing Power Increase
Going straight to the source and bypassing intermediaries can generate better prices and more power, especially if the metal needs (grades, gauges, sizes) etc. are bundled into a single buy.
- Usage Optimization
Reducing complexity (through standardization on gauges, grades, etc.) and segmenting suppliers (based on common needs) can lead to design and production cost decreases as well as unit cost decreases.
- Supply Chain Management
Optimizing the inbound (sourcing) and outbound (sale and delivery of scrap) can yield a number of process cost improvements.
Given the price volatility that follows every boom and bust in the economy, getting a good grip on total cost of ownership of organizational metal buys can save an organization 12% to 25%, which is well worth the effort. For more on how to save in specific metals categories, and when to lock in long term contracts, see the Metal Miner blog — the only blog focussed on helping organizations optimize their metals strategy.