Contract manufacturing - review price driver 2022?!

Especially in the area of contract manufacturing, an increasing price development could be observed in recent months. Due to the energy crisis and the war in Ukraine, there are increasingly high prices in the procurement of turned and milled parts.
Thus, not only private individuals notice the increase in prices in their own wallets. Also companies are confronted with the situation that in the last months both the material and the production have increased in price (partly extremely). Therefore, the acute shortage of raw materials such as steel, copper and iron is the reason why many contract manufacturers have to raise the price when selling their turned and milled parts.
Thus, supply bottlenecks can be enormously limited or slowed down due to a lack of freight capacities or also due to the current war in Ukraine. As a result, despite the increased demand, contract manufacturers are unable to produce the components because there is simply a lack of the necessary material for production. Another reason for the price increase is inflation. This has contributed to the fact that the cost of raw materials has also been driven.

Compared with the previous year (as of 2022), prices for raw materials have risen by around 19.2%. One reason for this could also be the Corona pandemic, which caused demand for materials to fall and thus reduced production capacities and output volumes.

The now increasing demand is now causing the shortage of raw materials and the price increase. Thus, sooner or later, many companies have to adjust the price to compensate for inflation. But it is primarily this very dependence on raw materials that is causing prices to rise in the market. It would therefore make sense for contract manufacturers to reduce this dependence on raw material suppliers and countries in order to be prepared for future crises. Especially in the B2B sector, not only the current situation should be considered, but also future-oriented planning. This also allows customers to rely more on their suppliers. This then manifests itself in the willingness to buy and the resulting customer loyalty and satisfaction. Another point is the current energy crisis (energy is available, but prices have risen sharply), which is causing contract manufacturers to adjust their prices. Since the Ukraine war, the issue of energy costs has come to the forefront, especially in the B2B sector, as they affect everyone involved in the manufacturing process. The cost of production, as well as delivery, is increasing, and thus also affecting the customer's order total. This ultimately adds up to a total price that the customer cannot and will not pay.

Many orders are not realized due to the increased prices or are postponed in the expectation that production prices will drop again. Other projects have to be commissioned. If companies have to cover the high costs, they cannot prevent that savings have to be made in other corners. Thus, adjustments may have to be made within the company. There are additional costs for the machine hourly rate in the area of contract manufacturing. So, in addition to the rising costs of energy and raw materials, the company also has to make sure that its workers are satisfied and paid appropriately. Not exactly easy for some companies.

Since costs are skyrocketing due to the current situation, the question arises whether there is an opportunity for the client to reduce or save costs at certain ends. A good option would be the choice of material. Is the material you have chosen for the production of the component absolutely necessary or can it be replaced by another, possibly even cheaper material? It does not necessarily have to be a worse material due to the low price. Currently, raw material prices fluctuate and therefore an alternative material would be a good way to reduce the cost of the turned and milled part. Likewise, changes can be made to the part itself to lower the total in the shopping cart. For example, tolerances can be adjusted in addition to the material. Furthermore, a general revision of the component in its design could allow the price to vary. A complex component is not always absolutely necessary if a simpler design of the component would do just as well and fulfill the desired function. Experience shows that more bids are submitted if the component is easier to realize. The more complex, the fewer producers are able to realize the component, or if they can, then they drive up prices due to the complexity. This can therefore be counteracted by a simple component.

As mentioned above, many companies pass on their costs to their customers. This raises the question of whether the customer has the option to contain the costs. And if so, - which ones?
The B2B contract manufacturing portal PART FACTORY supports customers exactly there. Through the portal, the customer has the opportunity to get a price comparison. Another option is to review the contractual relationships that you, as the client, have concluded with suppliers. Are they still worthwhile or would it make sense to look for alternative options? At PART FACTORY, you benefit from our large network of tested and qualified producers. So we support you not only in finding a suitable producer for your component, but also in the search for offers. This way you will receive a market-driven offer for your request.