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How to Manage Price Fluctuations for Raw Materials

Supply Chain

Paulo Arruda
Purchasing and Logistics, Elasto Proxy

How well do you handle risk? For businesses that source raw materials internationally, risk management is a key to supply chain strength. By identifying all of their risks and applying resources efficiently, global companies can minimize the probability and impact of price fluctuations for raw materials.

Too many buyers are lured by low unit prices that skyrocket when global prices rise sharply. You can control your agreements with vendors, but your business cannot control the weather, political unrest, strikes, and transportation issues in a supplier’s country. So what should buyers and managers do?

The answer is to build partnerships, understand demand, and buy the right amounts.

Building Partnerships

Here at Elasto Proxy’s headquarters in Boisbriand, Quebec, Canada, it’s my job to manage and optimize our material procurement, logistics, and inventory strategies. Before we partner with a vendor, we visit the company’s facilities and evaluate their business operations. Our supply chain strength benefits our customers, for whom we custom-fabricate rubber and plastic components such seals and gaskets.

Price is important, but it’s not the only factor that Elasto Proxy considers. Innovation, quality, honesty, and dependability are values that our company looks for and expects partners to share. For the suppliers that we select, regular on-site visits help us to identify risks and strengthen business relationships.

Understanding Demand

As a custom fabricator of high-value, low-volume rubber and plastic parts, Elasto Proxy needs few long-term contracts. Rubber prices fluctuate throughout the year, so we manage most vendor agreements on a monthly or quarterly basis, depending on the material compound. There is more price variability with synthetic rubber than silicones, and our agreements reflect this.

During the agreed-upon period, prices are fixed. Some vendors can hold their prices for longer than others, but the global chemical market varies. Industrial usage such as seals, belts, and hoses accounts for only 20% to 25% of worldwide rubber demand. Because the tire industry consumes most of the rest of the world’s rubber, an increased demand for automobiles drives up raw material prices in our own market.

Buying the Right Amounts

Strengthening your supply chain involves building partnerships, understanding demand, and knowing how much to buy. Here at Elasto Proxy, our supply chain is strong enough that we can purchase just enough materials to maintain our service-level agreements with customers. By analyzing customer sales forecasts and annual estimated usage, we minimize risks such buying too much or too little material.

Logistics provides value to your company’s customers. By building partnerships, understanding demand, and buying the right amounts, buyers and managers can strengthen their supply chain to account for price fluctuations in raw materials.

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