Cost optimisation in raw materials management
How a leading manufacturer in the packaging industry optimised raw materials management through fixed price components when working with INVERTO.
Securing conditions and planning costs are two of the biggest challenges in raw materials management. By carefully considering individual cost components, significant cost reductions can be made on primary materials in the long term, and costs can also be planned.
Until now, a leading manufacturer in the packaging industry procured its PP and PET plastic films on the spot by comparing prices at the time of purchase. The supplier market was dominated by an oligopoly, making it impossible to conclude long-term contracts. In addition, price fluctuations were difficult to assess due to clear price fixing between the suppliers, since they were caused not only by raw material price fluctuations, but also partly by an adjustment of margin rates that lacked transparency.
INVERTO was tasked with achieving a sustainable reduction in procurement costs in this difficult environment. It also needed to ensure that future price adjustments would be based solely on fluctuating raw material prices and not on arbitrary margin adjustments.
Course of action
Based on a comprehensive analysis of customer needs and the supplier market, we identified appropriate indices for the company, which made variations in the raw material prices more transparent.
By comparing the past Raw Materials Price Index with the prices actually paid for the films, a processing price was determined based on actual fixed processing costs and the margin set by the supplier. An analysis of the available data revealed some significant fluctuations in the processing price, which could only have arisen through the constant adjustment of margin by the supplier.
With this knowledge, we produced detailed tenders in the project in which the individual price components were queried separately.
As a result of subsequent negotiations, long-term contracts with agreed contract prices were concluded with suppliers. The suppliers thereby committed themselves to a fixed processing price without margin adjustment for the contractual period. In addition to the processing price, raw material costs are calculated and updated every 14 days using an agreed formula based on independent indices. In turn, the packaging manufacturer will only use the selected suppliers during the contractual period.