How To Manage Increasing Material Costs

stainless steel angles, materials shortage

The engineering and manufacturing industries are currently being presented with a significant problem in the form of a material shortage and spiralling costs. This has caused chaos within all corners of the sector, leaving buyers and suppliers alike with a litany of unprecedented challenges. The COVID-19 pandemic, along with the finalisation of Brexit, has succeeded in creating something of a 'perfect storm' for the manufacturing industry, leaving many without the resources they desperately need to complete jobs.

As we continue to negotiate these issues - and with no clear end in sight - it's important that we adapt both our supplying and sourcing strategies accordingly. As this is a universal problem affecting the entire industry, an awareness of the finer details of the current material shortage may help us to understand what to expect until a solution is reached. If you've found your supplying or sourcing efforts hampered by the material shortage, then here are some tips on how to manage in the meantime:

Managing the Material Shortage as a Supplier:

Transparency is Key:

Being transparent with your customers will go a long way towards maintaining a good working relationship.

It's always best to be upfront with your customers about the inevitable consequences of the current materials shortage. As this is a universal issue, chances are that your customers are already familiar with what is going on - however, they may not fully understand the implications for both your business and theirs. 

It's important that they're made aware that material costs are undergoing massive fluctuations, meaning that you may only be able to guarantee quoted prices for a short period of time. If there is a risk of delay due to difficulties in sourcing materials, then let them know as soon as possible so that contingencies can be put in place if need be. Ultimately, you can only work around the situation as best as you can, but being transparent with your customers will go a long way towards maintaining a good working relationship long-term.

READ: How Has a Global Pandemic Shaped the UK's Subcontract Purchasing Landscape?

Consider Adding Additional Clauses Into Your Contracts:

It's crucial that you do not end up bearing the brunt of price rises.

As a business, you do not want to end up working at a loss. It may be necessary to consider adding additional clauses into your contracts until the material shortage has eased - this way, your business is protected in the event that costs rise drastically between order placement and production.

Suppliers UK-wide are experiencing the same challenges, meaning that most companies will have an understanding as to why these additional clauses are necessary. Whilst customer satisfaction is extremely important, it's also crucial that you do not end up bearing the brunt of price rises - at the end of the day, it is your customers' own responsibility to adapt accordingly and pass any price rises onto their own clients.

To Stockhold or Not to Stockhold?

It's important to weigh up the pros and cons of material stockholding.

A great way to get around the current materials crisis and be able to offer a fixed price to your customers is to stock up on materials. However, it's important to weigh up the pros and cons of doing so before committing to your decision. On one hand, offering a fixed material price may be hugely beneficial to both your sales process and your customers - on the other, it could result in you having large quantities of material that goes unused.

If you tend to work primarily with one material, or if you have a customer who regularly orders components in a set material grade, then stockholding may prove to be a no-brainer. However, if your work is more varied, then material stockholding may prove to be something of a risk. You may be able to get around this by having an honest conversation with your customers - for instance, if you have a customer who regularly orders low batches of a certain component, explain that you will be able to offer a fixed price if they place an order for a higher volume, therefore allowing you to stock the material. Either way, it presents a viable solution to the problem that is worth your clients' consideration.

READ: How Will Brexit Affect UK Subcontract Sourcing?

Managing the Material Shortage as a Buyer:

Manage Your Expectations:

There may be some disparity between the price quoted and the actual cost.

Although most suppliers are doing everything they can to work around the current materials shortage, it's vital that you have realistic expectations and an understanding of their current limitations. The cost of materials is fluctuating so rapidly that there may be some disparity between the price quoted and the actual cost - if this is the case, then you may want to consider having a conversation with your own customers about absorbing any last-minute price hikes.

It may also take longer than usual for your parts to be produced. Difficulties in material sourcing have led to increased lead times across the board - it's important to remember that this is a universal issue and not a personal vendetta against your company! By managing your own expectations, you can begin to manage those of your customers and end users, allowing everyone within the supply chain to accommodate this unfortunate market shift more comfortably.

Don't Wait Until the Last Minute:

Leaving orders until the last minute will not fare well within the current climate.

Due to the increased lead times as a result of difficulties within the material sourcing process, it's best to adopt an organised approach when it comes to your own purchasing efforts. Leaving orders until the last minute will not fare well within the current climate - instead, you may benefit from planning your purchasing requirements way ahead of time.

With all the planning in the world, however, there will always be occasions where you need to source a supplier quickly. Remember, Qimtek can help you to find a supplier with immediate capacity through our free and easy-to-use Drag, Drop, Source! service. However, it's important to bear in mind that the use of non-disclosure agreements will inevitably slow the response time, so it's best to reserve these for use within sensitive projects only while we all work through the current challenges.

READ: Is the UK's Automotive Industry Under Threat?

Be Prepared to Make Quick Decisions:

Under the current circumstances, suppliers are often unable to hold prices for long lengths of time.

Under the current circumstances, suppliers are often unable to hold prices for long lengths of time, with most advising that quotes are only valid for anywhere between two days and a week. This means that you need to be prepared to make faster decisions when placing your business if you want to secure the cost you've been quoted.

Another potential solution is to discuss the possibility of placing orders for larger quantities with your suppliers, to then be delivered on a call-off basis. This may allow your supplier to explore the possibility of material stockholding, guaranteeing you a fixed material price until the situation has been resolved. Although this will not be a viable option for every supplier, it's definitely worth having the conversation to see if you can reach a more agreeable solution all-round.


If you're looking for suppliers with immediate capacity, then Qimtek can help! Simply click the button below to use our free Drag, Drop, Source! service, providing you with multiple quotes directly to your inbox.

Click here to use Qimtek's Drag, Drop Source! service

Alternatively, if you would like further information or advice about tackling the current materials shortage, please don't hesitate to contact your Qimtek account manager on 01256 394 500.