McHone Industries Blog

The Cost of Steel & How Involving a Vendor Tightens Your Supply Chain

The cost of steel is more complicated than you might think. Steel is a global commodity, and its price varies daily.

Without raw materials to make your product or manufacturers to provide what you eventually resell, your company probably wouldn’t exist. It’s beneficial for engineers and buyers to understand what influences the cost of steel and how it relates to your supply chain. There are also several reasons you should consider asking your vendor to supply your raw steel instead of outsourcing it from overseas or another DIY method.

Cost of Steel

cost of steel Forecast.jpg(Photo courtesy gensteel.com)

Prices can be influenced by several supply-and-demand factors, including:

  • Strength of the American dollar
  • General condition of the world economy
  • Natural disasters

You can streamline production and cut costs by choosing readily available materials and grades. A less common steel type will likely cost you more.

You can also try a price-calculating tool to get an idea of what you’ll pay before you approach a vendor.

State of the Industry

Download 12 Major Cons of Offshoring

Much of the steel industry’s current state can be tied to the rate of China’s production. Chinese steel prices spiked to record highs in August 2017. Raw material costs rose accordingly.

Higher foreign steel prices translate to increased costs for engineers and buyers that rely heavily on imports. If that’s where you’re getting your steel, you’re going to have a harder time keeping up financially with your material needs. Sounds like a potential kink in the supply chain.

Benefits of Your Vendor Handling Materials Acquisition

(Fun Fact: At least 85% of businesses outsource some part of their supply chain operation or management.)

Working closely with your manufacturer can mitigate the volatility of the cost of steel. The right partner vendor will also smoothly manage your supply chain.

Here’s how:

1. Market Knowledge

OEM vendors typically don’t produce their own metal. They buy from raw materials suppliers, then fabricate it to your specifications. They’ll be familiar with market trends and raw material prices because they’re dealing with them frequently.

Raw steel prices from manufacturers are usually the lowest option unless your location makes shipping expensive.

Manufacturers can be important sources of information, tracking down the best deal possible for you. Let the experts do the forecasting!

2. Inventory Management

In the modern supply chain, companies use material forecasting to ensure that they produce the level of material that satisfies their customers without putting too much inventory on the shelf. Just as importantly, the forecast must not fall short, leaving you without steel to make the products your customers desire.

Working with a manufacturer instead of trying to juggle inventory yourself can result in more efficient material use. You won’t spend money earlier than you need to on steel that’ll just collect dust.

Effective supply chain management can ensure that raw steel consistently arrive at production facilities at the proper time. This way your company is never left unable to fulfill time-sensitive orders. In those cases, you could have no choice but to procure materials from alternative sources quickly, resulting in lower profitability.

3. Friends with Benefits

Vendors can do so much more than merely supply you with the materials and services you need to do business. For example, an experienced manufacturer involved from the get-go may suggest a different metal grade or even an entirely different metal. Sometimes an expensive steel isn’t a must.

Vendors can turn into valuable partners, helping you cut costs and improve product designs. Many partners will offer discounts for repeat, all-in-one business, streamlining both your budget and your supply chain.

Leave It to the Experts

In most cases it’s best -- and cheapest -- to leave raw steel purchases to your OEM vendor. Steel is an especially volatile material to pin down pricewise. Let the experts handle it and focus your efforts on designing for and delighting your customers!

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