What are Raw Materials?
Raw materials are the inputs that go into creating a finished product. Manufacturers purchase the raw materials they need in order to produce their final result. Once those materials have been processed on the assembly line, they become a finished good.
The exact definition of raw material can vary depending on the industry of the particular manufacturer. In the plastics industry, for example, polymers and chemicals are the raw materials – or pre-production inventory. In other industries, it of course depends on what the finished product will be.
What is Raw Material Consumption?
Raw material consumption refers to the raw material that is used – or consumed – during a production cycle or any defined period of time. It’s an important metric for manufacturers to track, especially when it comes to material management and waste management. Knowing exactly how much of the raw materials available are used vs. how much goes to waste can help ensure more efficient inventory management.
A raw material consumption formula is used to calculate the value of the materials used in a given period:
Amount of raw materials at the beginning of the time period
+ Purchase of additional raw materials
– Amount of raw materials at the end of time period
= Raw material consumption
Why is Raw Material Management Important?
Keeping track of raw materials and producing a regular raw material consumption report is crucial to the way manufacturers manage the flow of materials and inventory in the factory – something which has a huge impact on the operation’s efficiency and bottom line.
Without effective material management protocols in place, manufacturers may find themselves with too much of one input or missing another and therefore unable to complete customer orders on time. This mismanagement will ultimately have a negative impact on sales and profits. A robust material management system, on the other hand, means knowing how much of each raw material to order and when in order to minimize waste, work more efficiently, save on costs and produce a higher quality product.
Best Practices for Raw Material Management
There are actions manufacturers can take in order to optimize raw material consumption, thereby minimizing waste and increasing efficiency and profitability, including:
- Guidelines for material quality – as part of material management, manufacturers should set clear guidelines to be used by all employees responsible for purchasing raw materials. Universal guidelines eliminate any ambiguity and ensure consistency across the board.
- Careful selection of suppliers – it’s not just the materials themselves that should be high quality, but the suppliers themselves should be reputable and offer the flexibility and transparency needed to maintain a strong business relationship.
- Assign a materials manager – although it’s likely that more than one employee will be responsible for ordering raw materials at any given time, having one person who is the dedicated materials manager will make the process more efficient and leave less room for error.
- Use “Just-In-Time” – this inventory control method involves only sourcing materials once a customer order has been placed. While it does run the risk of not being able to get needed materials, it is very effective in terms of waste management and cost reduction.
- Keep the warehouse organized – an organized warehouse will make it easier to see what raw materials are in stock and what needs to be ordered, which will also streamline the process when it’s time to create the raw materials consumption report.
- Regular reviews of the process – raw material consumption can change over time and so can the effectiveness of the material management processes in place. That’s why it’s important to conduct periodic reviews and make sure the system is working or determine what needs to be adjusted and improved.
- Get technological help – from calculating the raw materials consumption formula to producing reports and just generally monitoring the levels of inventory, there are plenty of technological tools that can automate and upgrade the material management process.