Most of the time, price is the only metric used to differentiate a service center’s product line, so it’s easy to understand how a manufacturer might assume the cheapest price tag is the most cost-efficient product. The thing is, to determine true cost efficiency—and avoid hidden costs down the road—you need to weigh countless other metrics.
Looking beyond price
To better understand these additional metrics, consider this example: Imagine, for instance, you’re a tank manufacturer looking for the lowest price per pound on three different sizes of stainless steel sheets. You find a supplier who’s offering this specific product for pennies cheaper than their closest competitor, so you sign a deal and go with them.
Shortly into your contract, however, your supplier is having trouble sourcing one of the three sizes you need, so you’re forced to find another vendor—at a slightly higher price—to deliver the outstanding sized sheet. Suddenly, you’re not only paying more per sheet in that specific size, but you’re also dealing with the cost of processing invoices and receiving products from two different suppliers—which increases your back-end costs.
To further complicate matters, your first supplier is sourcing its products from a mill in China, while the second is sourcing products domestically. The quality of the domestic sheets meets your manufacturing standards, but the quality from the mill in China is inconsistent. When a shipment comes in, you have to carefully go through it, reject the low-quality sheets, process the rejects and wait for replacement sheets to arrive, resulting in a lot of wasted time and money.
Plus, while the domestic mill offers an option of just-in-time (JIT) delivery, the mill in China requires you to place bulk orders. Now you not only have to find a place to store the inventory you’re not quite ready to use (and pay storage fees to do so) but you have to make sure you order the right amount. Overshooting or undershooting can both cost you more money—either because you have to place another bulk order or because you’re left with excess product.
The power of a strong partner
As this example shows, you need to take a full range of factors into account when assessing the cost-effectiveness of your metal purchase. To keep total costs under control, your service center should be able to consistently meet your quality standards, deliver the amount of inventory you need whenever you need it and be able to advise you on which materials can best meet your production goals. In the final analysis, that will help you save money even if your metal prices are marginally higher.
To learn more about how Samuel can help you improve the cost-effectiveness of your metal purchases, contact us.