Feb 5, 2025
Sourcing Raw Materials: 5 Steps to Improve Your Process
This guide reveals strategies for sustainable procurement.
Raw materials are essential to businesses around the world, but sourcing the right resource in the correct quantities at the best price is a complex process that every organization must strive to get right. Fluctuations in the prices of raw materials can affect your costs by up to 50%, which can have a dramatic effect on your bottom line. For this reason, you cannot leave your strategy to chance. You have to apply a smarter, more sustainable approach to sourcing raw materials.
What does sourcing raw materials mean?
Sourcing raw materials relates to the process businesses take to identify, procure, and secure the components they need to produce and manufacture the goods that they sell. This involves finding and evaluating the right suppliers, based on cost, quality, and other criteria, as well as ensuring they get hold of the materials in a timely manner and in compliance with laws in the jurisdictions through which the raw materials travel.
Raw materials can be either natural or synthetic. The difference is the following:
Natural materials are those that come directly from the environment and which require little processing before heading to the business sourcing the raw materials. This includes items such as wood, wool, cotton, metals, and minerals.
Synthetic materials are those that someone creates or produces in a chemical process. This includes plastics, synthetic fibers, and similar resources that other companies use to create their products.
The type of raw materials you need will dictate your sourcing process, as will the renewability status of the resource. Renewable resources can regenerate relatively quickly, such as timber and crops, whereas you cannot replace non-renewable resources as quickly as they are consumed. This includes coal, oil, and natural gas.
How to identify reliable sources
Your company needs to be able to find the right suppliers in order to procure the raw materials it needs. This involves understanding the reputation of potential supply chain partners and finding references from other businesses that have used them in the past. Look for relevant certifications for expertise and performance, including environmental consciousness, and inspect their products to ensure they meet your quality standards. Analyze their supply history to gain insight into how consistent their pricing is and how prompt they are with deliveries.
One consideration involves choosing between domestic and international suppliers. Here is a handy guide into factors that might influence this decision:
Type of supplier | Pros of using them | Cons of using them |
Domestic |
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International |
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How to improve your raw materials sourcing process
These steps will help you create a more robust process for sourcing raw materials:
1. Strategic planning for sourcing
The first thing to do is to work out what you want to achieve with your sourcing strategy. Consider carefully the key raw material requirements for your industry and products. This will help you focus on your individual needs and tailor your strategy accordingly.
Then consider what your objectives are. Do you want to find the cheapest option, the most environmentally friendly supply chain, the entities most able to scale up supply as your company grows, or something else? Aligning your sourcing strategy to your business goals makes a lot of sense because finding the right supplier who will grow with you is more convenient than having to go through the procurement process again from scratch every time your needs change.
Map your current sourcing process and think about which areas will prevent you from achieving your aims. This allows you to adjust the strategy, rather than starting from nothing and building a completely new way of working.
2. Incorporating sustainability and ESG goals
Sustainability and an awareness of environmental, social, and governance (ESG) matters are essential in today’s society. Not only is it correct to ensure we limit negative impacts on the environment and on individuals in our supply chains, but also customers want to buy from those businesses that embrace sustainability and positive ESG performance. SEC Newgate’s ESG Monitor report found that two-thirds (65%) of consumers believe companies should play a more active role in society.
This is a difficult balance to maintain when you are using raw materials, potentially including resources such as timber, which could have been felled as part of destructive deforestation. Similarly, businesses who import conflict minerals must be sure to source them from areas that are at low risk of the proceeds being used to fund wars and human rights abuses. It is essential that you work with suppliers that do not put you at risk of being associated with these detrimental activities.
In addition, legislation around the world is aimed at improving sustainability and ESG performance, with penalties possible for those businesses that fail to comply. This includes the EU’s Conflict Minerals Regulation.
3. Supplier identification and evaluation
With this in mind, be thorough when setting out your criteria for potential suppliers. List your ideal requirements from a supply chain partner and involve other departments to help you hone your wishlist. What are the key, non-negotiable attributes that they must possess? Knowing this before you start engaging suppliers allows you to narrow down the pack accordingly and make the process less overwhelming.
With these criteria in mind, set out to find suppliers that meet your requirements and will be able to help you achieve your business goals in an efficient and effective manner. Create a long list of potential partners and have colleagues suggest additions or ones to discard.
Now that you have moved closer to finding your ideal partner to supply raw materials, you can check references and audit their performance. This will narrow the list further. Even if a supplier is priced attractively, you might find out at this stage that they have a history of missing supply deadlines, which would be detrimental to your business. Eventually, you will be able to discover the ideal supplier or suppliers for your raw materials.
4. Optimize logistics and supplier performance
Once you start working with a supplier, it is essential to analyze your supply chain and their performance to ensure they are delivering on their promises and to your benefit.
Set key performance indicators (KPIs) that they must meet to see how effective they are and to set a tangible target for them to aim for. If you feel that they are coming in below par, ensure that you have open communication lines to engage them and find out if there is a way to help them improve.
Your supply chain requires a collaborative effort to ensure that your materials arrive on time and in the correct quantity from their origin location. By encouraging open discourse, you improve trust, instill accountability, and make it more likely that the supplier will flag potential issues early, allowing for you to work together to create a solution.
You can employ technology to optimize the logistics of your supply chain, using Beebolt’s powerful platform and its analytical tools to make better-informed decisions over freight forwarders, for example, and to anticipate supply chain disruptions. This allows you to find an alternative proactively.
5. Build long-term relationships
To get the most from your raw materials supplier, you need to work together effectively and commit to a long-term relationship. Otherwise, there will be a lack of clarity over the intentions of either party. When you build strong relationships, you provide assurance to the other partner and set yourself up for a mutually beneficial collaboration.
This gives you greater supply chain visibility, which is essential for reducing disruption and maintaining adherence to the law in all territories in which you work, as well as sticking to your internal standards and goals. You can also negotiate more favorable terms, given the prospect of providing ongoing custom to the supplier.
Offer training to the supplier and their employees, helping them develop and continue to meet your needs into the future.
Common raw materials sourcing challenges
Geopolitical tensions: Reliance on materials from politically unstable regions can make it difficult to guarantee a regular supply in general and may provide ethical issues if the proceeds of the deal fund armed conflict or war crimes.
Supply chain disruptions: There is a vulnerability to global logistics issues when you source supplies from regions other than your own.
Limited suppliers: There are few sources for critical materials like gallium and palladium, meaning that you are at the whim of suppliers who can demand prohibitive terms in exchange for supplying scarce products.
Rising costs: The price volatility of rare and essential raw materials makes it difficult to budget accurately and could lead to necessary rises in the price of your products
Environmental regulations: Compliance with strict sustainability laws around the world is essential for the ethical sourcing of raw materials in a way that does not endanger affected communities and the environment.
Traceability issues: Difficulty tracking material origins across complex supply chains can make it more difficult to plan operations effectively.
Quality consistency: If you work with multiple suppliers, you need to make sure that the raw materials you procure are of a consistent quality to ensure you can create your products to a uniform standard.
FAQ
What are the benefits of sustainable sourcing?
Sustainable sourcing helps reduce your environmental impact, strengthen your ethical and social practices, and improve brand reputation by meeting the expectations of legislators, shareholders, and consumers alike.
How can companies manage risks in their supply chains effectively?
Businesses can manage supply chain risks by conducting thorough due diligence, diversifying suppliers, implementing robust monitoring systems, and planning for contingencies.
How can businesses effectively identify new sources of raw materials?
You can discover new raw material sources through market research, supplier assessments, networking with industry peers, attending trade shows, or joining online sourcing platforms.
Conclusion
Sourcing raw materials is a complex process and requires strong relationships with suppliers, as well as visibility over the journey of those materials from their origin to your premises. Planning is key to finding the right suppliers and collaboration helps to engage those suppliers and keep the chain running smoothly.
Beebolt’s collaboration platform for global trade provides a comprehensive dashboard that gives you an overview of your whole supply chain, tracking shipments and communicating with suppliers to keep track of activities and understand any issues that might arise. This enables you to prepare for disruption and helps you rest assured you will get the materials you need when you need them. Speak to an expert today to find out how Beebolt could supercharge your supply chain.
