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Have difficulties locating raw materials ever arisen? Have unanticipated delays in receiving raw supplies occurred? COVID has demonstrated to us how even seemingly insignificant supply chain issues may spiral out of control and have a negative impact on your company. There are various techniques you may do to enhance the sourcing of your raw materials and better maintain your supply chain.

The Oxford Dictionary defines raw materials as “The basic material from which a product is made.” but that is a simple way to put it for basic understanding.

However, Wikipedia defines raw materials further,

“A raw material, also known as a feedstock, unprocessed material, or primary commodity, is a basic material that is used to produce goods, finished products, energy, or intermediate materials that are feedstock for future finished products.”

Though all the raw materials are obtained naturally, they can be divided into 3 types based on where it is derived from.

  1. Plant/tree-based – materials like vegetables, fruits, flowers, wood, resin, and latex are obtained from plants and trees.
  2. Animal-based– materials like leather, meat, bones, milk, wool, and silk are all obtained from animals.
  3. Mining-based– materials like minerals, metals, crude oil, coal, etc. are obtained by mining the earth.

Apart from this, a manufacturing unit divides the raw materials into 2 main categories.

  • Direct raw materials: The primary component from which a finished product is made is called direct raw materials. For example, wood is a direct raw material from which furniture like chairs, tables, beds, etc. are made. Another example is leather used for making purses, shoes, bags, etc.
  • Indirect raw materials: On the other hand, indirect raw materials are the materials that supplement in making the finished product from the direct materials. For example, the glue, nails, varnish, etc. used in making wooden furniture like chairs, tables, beds, etc. are all indirect raw materials. Similarly, the buckles, metal hoops, zips, glue, lining fabric, colors, etc. used in making leather purses, shoes, and bags are all indirect raw materials.

How to Source Raw Materials For Small-Scale Enterprises

1. Source Locally When You Can

Sourcing locally has its advantages. First, it’s easier to determine whether your materials are ethically sourced. It’s often easier to get local materials to you, with fewer delays. You may be able to bring them in faster when your inventory needs change suddenly.

Pay attention to where your providers are getting their materials. If your providers are sourcing their materials from overseas or across the country, you may encounter delays.

2. Build a Diverse List of Sources for Raw Materials

Diversity is a wise approach. Sole sourcing may be less expensive, but it means that you are entirely reliant on that source. If there are shortages and challenges that impact that supplier, you may find it impossible to overcome them for your own sourcing needs. If you have diversity in your sourcing, you can bring in raw materials you need even when challenges impact other areas of your supply chain.

3. Increase Your Available Inventory

If you’ve struggled to provide supplies your customers need, consider ways that you can increase your own available inventory. You may need to invest in additional warehousing options to maintain that higher level of inventory, but it can ultimately prove incredibly beneficial to your entire business.

With the right supply chain planning solution, you can get a better idea of what supplies you need to have on hand and what your customers need. When you have the supplies in your own warehouse, you can better manage your overall inventory.

The inventory in your warehouse also puts you in a better position to weather potential supply chain problems, which means you may be better positioned to keep your customers happy even through a shortage or other problems.

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Keep in mind, however, that you must accurately predict your inventory and supply needs for increasing your inventory to do you any good. You must track the inventory you have on hand so that you can use it effectively, rather than allowing it to gather dust in a warehouse or ultimately get damaged. Furthermore, if you have perishable goods, there may be a limit to how many you can keep on hand.

4. Connect with a Distributor

Distributors often can help find additional resources when you are struggling with your primary supply source. They usually buy and sell on a global level, which means they can keep up with current trends and provide you with the most cost-effective solution to your current supply chain needs.

Often, distributors also have resources well beyond the ones you can access on your own, which means they may be able to find supply pathways or solutions that will help you over a difficult patch.

If you work with a distributor on a regular basis, you may find that they can help build your supply chain and your inventory for potential future shortages.

5. Leverage a Consignment Approach

To manage your inventory effectively, you may want to use a consignment approach: you send your products to a distributor but maintain ownership of them until they are sold. Once they’ve been sold, the distributor will pay you for them. Platforms like Amazon FBA, for example, can take care of many warehousing responsibilities for you, which may allow you to maintain greater overall inventory without substantially expanding your existing warehouse solutions.

A consignment approach can cause some problems if you fail to properly forecast demand for your products. However, by using the right supply chain management solution, you can often effectively predict trends, manage inventory, and ensure that you have the right products on hand.

Navigating supply chain challenges has become increasingly difficult for many businesses in the past two years. Sourcing raw materials, including ensuring that you have a steady supply of the materials you need, can be difficult. With these strategies, however, you may be able to do a better job of sourcing the materials you need, maintaining your supply, and increasing overall satisfaction.

How do You Procure Raw Materials?

Businesses depend heavily on raw materials, especially those in the manufacturing industry. Manufacturing activities can be stopped and negatively impacted by even a little interruption in the raw material supply chain. Although buying raw materials from renowned and trustworthy sources helps to maintain a stable output, there are many other things to take into account.

The technique you use will depend on the kind of goods or services needed. There are numerous ways to obtain materials.

In the manufacturing industry, procurement refers to the process of acquiring raw materials from an outside source. Researching, choosing, ordering, and paying for the raw materials needed by a business are all part of the raw material procurement process. The procurement process includes procedures including finding and choosing providers, negotiating costs and terms, and awarding contracts. The choice of raw materials depends on a number of variables, including price, availability, quality, and delivery time.

The process for material procurement is essential for efficient supply chain management since it directly affects an organization’s bottom line. When obtaining raw materials for your company, you must take all relevant considerations into account.

Although the terms “purchasing” and “procurement” might be used interchangeably, there is a difference. While procurement refers to the overall structure put in place to improve procurement and save costs, purchasing refers to acquiring raw materials for everyday operations. In order to construct a more efficient procurement process, many businesses have developed a raw material sourcing strategy.

The material procurement process consists of seven main process steps. The key steps in the procurement of raw materials include the following:

1. Need analysis

Assessing the need is the first crucial step in procurement where the company takes stock of the raw materials required from different teams and segregates the list depending on the priority of the needs. At this stage, the team handling procurement also determines the best way to procure raw materials in terms of cost saving and logistics.

2. Contract negotiation and approval

Once the list of procurements is decided, the procurement department identifies vendors and requests for quotes. At least three quotes are sourced as a practice, but it depends on the organization. The vendor with the lowest quotation is selected and post approval of the quote, the raw materials are transported to the manufacturing units.

3. Purchase requisition

Once the list of procurements is decided, the procurement team seeks approval for the purchase. They also cross verify the list with different teams and the raw materials are approved as per their operational priority.

4. Purchase order review

Prior to the final approval of the order, the senior procurement manager does one final review before approval. Once the approval is obtained from the procurement manager, the list is sent to the accounts department.

5. Funds for raw materials are verified

Based on the list, the accounts department issues a purchase order to the vendor and releases the funds. That purchase order is an indication to the vendor that the request has been approved and that they can proceed with the request.

6. Shipping of raw materials

While in selected cases, the vendors arrange for the transportation of raw materials, it does not always happen in the case of all suppliers. In most cases, businesses need to arrange for their own transportation to transfer the raw materials from suppliers to the manufacturing units.

7. Invoice approval and payment

Once the raw materials reach the manufacturing unit, the products are cross verified against the bill and the invoice is approved and the payment is transferred to the suppliers.

What Are The Strategies For Raw Material Procurement?

The acquisition of raw resources might occasionally be difficult. Using some tactics will help you manage your supply chain and get raw materials more effectively. The following are some methods for acquiring raw materials that can be useful to you:

Listed below are raw material procurement strategies that can help you:

  • Source locally: Raw material purchase from local vendors ensures that you can procure the materials with fewer delays. However, you need to ascertain where your providers are getting their materials, the quality of raw materials, and the timelines of delivery.
  • Build a list of sources: It is folly for any business to depend on a single vendor because the dependability on the supplier is high. If there are shortages and challenges at their end, you would find it difficult to source goods on time. Diversity in raw material purchase enables you with options and you can bring in raw materials you need even when you face challenges with a particular vendor.
  • Increase inventory: If you face regular shortages in raw materials, it is wise to increase your own available inventory. You need to understand the inventory turnover ratio, and if needed be invest in additional warehousing options. It will resolve your supply chain woes in the long run and to keep your customers happy. In this respect, consider using external warehouse logistics services to store inventory cost-effectively.
  • Connect with a distributor: Another factor that can help you to resolve raw material supply chain challenges is to identify a distributor. Distributors have additional resources and can provide you with the most cost-effective solution to your current supply chain needs.

The core of any manufacturing company is material procurement. It is crucial to establish a structure for the procurement process that guarantees prompt delivery and effective supply chain management. Large companies and supply chains can benefit greatly from demand aggregation for procurement, which not only helps with cost savings, improved logistics, and greater timeliness but also aids in boosting the efficiency of organizations.

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