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How to Offset Rising Material Costs

How to Offset Rising Material Costs

Increased lead times, shortages on critical materials, and transporting difficulties are affecting all segments of the manufacturing sector. As a result, metalworking manufacturers are facing substantial price increases for materials—from aluminum to wood pallets. According to the May 2021 Manufacturing ISM® Report on Business® The Institute for Supply Management (ISM) expects these increases to continue through 2021. So, in times of inflationary uncertainty, how do you offset the rising cost of material without reducing the quality of your final product while still meeting your customers’ expectations?

Metalworking operations across industries can look at the following possible options to reduce material costs and determine which ones would most effectively meet profit goals.

Use Substitute Materials

Where possible, research alternative materials that can be used in the metalworking process to substitute those that are climbing in price. When doing the research make sure to address all factors that could affect quality and customer expectations. For example, replacing higher-cost stainless steel with a carbon steel may save money, but it decreases the corrosion protection of the product which is probably an important benefit to the customer.

Also, keep in mind that by using an alternative material you may need to change the products manufacturing process which could increase other costs. For instance, if the substitute’s material cost is less but the final product will take more labor because of the new manufacturing process there would be no cost benefit for an alternative material.

Eliminate Product Features

Find out what customers are really looking for in a product when they buy. What is most important to them, quality, price, or other reasons. Once the most important buying motives have been identified, carefully select features that are not as important to the customer that can decrease costs by eliminating them.

Reduce Waste

For metalworking operations, relative to the cost of labor, the volume of metal scrap and spent fluid hauled off may not be thought of as important. However, employing scrap metal processing and fluid recycling equipment in-house can significantly reduce costs. By adding updated or new fluid recycling equipment to the manufacturing process shops see around a 75% decrease in new coolant purchases and a reduced haul-away of up to 90%. In addition, by installing metal chip processing equipment to the back end of the metalworking process, shops can reduce metal scrap waste volume by as much as 90% and increase scrap value up to 25%.
Recyclable fuid sprayed onto piece while cutting

Increase Process Automation

An increasing number of manufacturers are updating their operations with automated control systems to decrease inefficiencies and lower costs. Here are just two examples of how automation can help.

  1. Reduced labor

    Remotely monitoring equipment provides real-time data allowing for proactive actions when maintaining equipment and production schedules. This programming techniques can reduce labor costs by providing maintenance reminders or alerts for machines that are performing in a way that may indicate there are or will soon be problems with equipment. This is a proactive approach which decreases labor through predictive maintenance initiatives.

  2. Decreased Energy Waste

    Automated machine monitoring helps reduce energy waste/costs. Management teams can monitor machine energy spikes, peak hours, weekend use, wasted hours, and more.

Outsourcing

Hiring a metal fabricating contract manufacturer is a great way to cut costs, especially if there are disruptions in your supply chain. Outsourcing also shortens lead times without hiring additional resources.

Adopt a Green Philosophy

Both in the office and in the shop, review ways to become more efficient when it comes to waste. In the office, one way to cut costs is lighting. Ensure employees turn off lights when they leave rooms or install auto turn on/off light switches in the building and replace bulbs with more energy efficient bulbs. In the shop, employ green engineered equipment as a means to sustainable manufacturing.
Green Manufacturing Sticker Graphic

Consider Cooperative Purchase Agreements

Because ordering higher volumes often reduces the total price, consider contacting another company that uses your similar supplies and combine orders. Most suppliers treat logistics separately from sales so shipping to different locations should not be an issue.