This slideshow describes 20 areas for opportunity to reduce raw material costs. It segments the ideas into cost reduction opportunities within sourcing, manufacturing, and post-manufacturing. Some of these opportunities could be captured relatively easily, resulting in significant cost reduction. Others will need to be incorporated into your longer-term Continuous Improvement Strategy. Visit the Manuficient website at www.manuficient.com for more information on this topic.

1. 20 Reasons You’re Paying Too Much for Raw Material
Author:
Calvin Williams
Principal / Continuous Improvement Strategist
Manuficient Consulting
Manufacturing Strategy, Analytics, & Implementation

2. Raw Materials is usually the greatest cost of a manufacturer’s
total cost of goods sold (COGS)
Cost of Goods Sold
Raw Materials Direct Labor Indirect Labor Salaried OH Utilities /
Services
Warehousing Distribution Total COGS
There are always opportunities to
reduce raw material costs
Illustrative
Raw Material costs consider all costs charged to the manufacturer for the
materials used in production
Cost of Goods Sold, or COGS,
considers the total cost charged
to buyers

3. There are 3 segments of your supply chain where there are
opportunities to reduce material costs
Supply Chain Segments
Sourcing Manufacturing Post-Manufacturing
Considers contracting
arrangements with sellers of the
materials used in production
Considers the processes used for
converting raw materials into
finished goods
Considers all material handling
and supply chain activities
subsequent to the manufacturing
process

4. The first segment of material cost reduction opportunity is in
sourcing
Raw Material Cost Reduction - Sourcing
Accepting higher prices instead of taking
advantage of market competition
Paying higher prices by ordering smaller
quantities from too many suppliers
Accepting higher prices due to not leveraging
favorable supplier payment terms
Accepting higher prices instead of utilizing
negotiation techniques
Accepting higher prices by not collaborating
with competitors to get bulk discounts
Utilizing materials that are more expensive
than what is needed for the product’s function
Accepting higher prices by not commiting to
long-term purchasing contracts
Purchasing materials at full rate instead of
leveraging bargains
Purchasing based on your manufacturing
schedule instead of the suppliers production
schedule
1
2
3
4
5
6
7
8
9

5. The next segment of material cost reduction opportunity is in
the manufacturing process
Raw Material Cost Reduction - Manufacturing
High fill / packing variation resulting in high
fill targets and over-fill / over-pack
Scheduling using a “push” production model
resulting in excess or obsolete inventory
Scrap and material yield loss created by
“leaks” in the system
Too many low-consumption raw materials
caused by high SKU complexity
Over-application of material that customers
do not find valuable due to over-designing
products
Over-application of material due to
inefficiently designed products
10
11
12
13
14
15

6. The last segment of material cost reduction opportunity is post-
manufacturing
Raw Material Cost Reduction – Post-Manufacturing
Material lost in the supply chain being
scrapped instead of recycled or reclaimed
High supplier production costs, which could
be reduced by providing CI services
High supply chain costs for suppliers, which
could be reduced by providing warehousing
and distribution services
Accepting higher prices due to not leveraging
buyers to take advantage of bulk discounts
Too much shrinkage, or goods being lost,
damaged, or stolen in supply chain processes
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17
18
19
20

7. Quantification & Pareto Analysis of Opportunities
Through detailed analysis of opportunities and their impacts, a
plan can be developed to drive significant cost reductions
Raw Material Reduction Opportunity Analysis
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$
$ $ $ $
Opp 1 Opp 2 Opp 3 Opp 4 Opp 5 Opp 6
Implementation Prioritization Analysis
High Priority
Low Priority
High
Impact
Low
Impact
Low Cost High Cost
Sourcing Opportunities
Manufacturing Opportunities
Post-Manufacturing Opportunities

8. We offer an array of services to help manufacturers across
industries to realize their business objectives
Manuficient Service Offerings
Operating Cost
Reduction
Optimize process
efficiency to increase
labor and asset utilization
Production
Throughput Increase
Eliminate process
bottlenecks to unlock
untapped capacity
Material Cost
Reduction
Close material loss points
and/or identify favorable
sourcing options
Business Case
Analysis
Evaluate overall business
impact to support
decision-making
Should-Cost Analysis
Determine what a product
should cost to make or
procure
Network Optimization
Assess the optimal
manufacturing footprint
and associated benefit
Efficiency &
Opportunity Analysis
Provide on-going
process improvement
support
All services are
founded in
principles of Lean,
Six Sigma, Agile
Manufacturing and
other leading
disciplines designed
for operational
excellence

9. Contact Details
Calvin L. Williams, MBA, BSIE, LSS
Principal / Continuous Improvement Strategist
(404) 480-2307
calvin.williams@manuficient.com
Manuficient Consulting
Manufacturing Strategy, Analytics, & Implementation
2300 Holcomb Bridge Rd Suite 103-103
Roswell, GA 30076
www.manuficient.com
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