• Supply Chain
  • Food & Beverage
  • Manufacturing

Rich Chocolate: How Manufacturers Prepare for Rising Raw Material Prices

Written by Michael Clark
October 14, 2015

Google Logo

Companies that make chocolate products have to prepare for increased prices.

Manufacturing productivity calls for efficient staffing levels, operational production equipment and proper supply inventory management. Calculating the cost of raw materials needed for manufacturing becomes more difficult as supply prices change due to a variety of outside factors.

Chocolate has seen recent growth in popularity, but cocoa farmers aren’t able to keep up with the demand, according to The Guardian. A recovering U.S. economy plus prosperity in India and China created global demand for luxury products like chocolate. The chocolate market should experience a 30% increase from 2015 to 2020.

The small farms that grow cocoa beans don’t always get fair compensation for their activities, however, and many producers leave for more prosperous fields. The lack of agricultural resources and increased demand may send prices skyrocketing. Manufacturers that use chocolate in their products have to explore options to deal with the changing market.

Every company that assembles and fabricates merchandise must have a plan for dealing with problems stemming from raw material acquisition. When prices for parts and supplies go up, businesses should be ready to renegotiate existing deals and keep internal costs low.

Responding to Increased Prices

Chocolate prices, like any crop, change in response to extreme weather conditions, disease contamination and insect infestation. Whenever an event causes suppliers to raise their prices, manufacturers must know the details of the industry adjustment. The more information the business has, the stronger its foundation for negotiation.

Constant communication with a supplier is always a best practice. If a business has a good working relationship with a vendor, the manufacturer can create contracts around fluctuating supply markets. Open communication should give suppliers a chance to warn a buyer when prices will rise and explain the reasoning behind the change. My Purchasing Center, a business advice blog, said customers should ask for the exact details of every price increase. If a vendor raises the cost of materials due to shortage, the cost increase should only cover the market change. Businesses must lookout for partners trying to use fluctuations as opportunities to ask for more than their fair share.

Businesses should base every negotiation with a supplier on a wealth of information. Organizations must have a complete picture of production procedures to compare manufacturing material needs to predict customer demand. Production plants, inventory warehouses and sales departments should all report to a unified software system. Employees who use automated data collection solutions provide managers with the up-to-date details they need to communicate with outside parties.

A company should also investigate how other suppliers respond to material price changes. Supply Chain Digest suggested checking with non-competing manufacturers in similar industries to compare costs. A company should always investigate other suppliers to ensure it receives the best deal available. When prices for raw materials increase, it might be time to find a new supplier that can offer a better plan for the new economy.

Efficient Use of Supplies

Responding to shifting markets is a basic requirement for most manufacturers. Many industries also have to prepare for changes due to government regulations and consumer demand. Production lines and inventory warehouse need automated data collection solutions to plan efficient operations that don’t waste valuable materials.

Optimal automated data collection strategies incorporate devices manufacturing workers and warehouse employees can use as they perform tasks. Mobile data collection devices allow users to report inventory levels, supply needs and production activities in real-time. Complete visibility prevents waste and allows managers to spot redundancies in operations.

If a manufacturer has a system to monitor and promote efficient procedures, it can use every piece of purchased material to full effect. When supply prices rise, managers should build projections on accurate automated data capture procedures to plan new ordering contracts or trim expenses from less crucial practices.

A complete data history indicates when supply price changes are seasonal. Trends become easier to spot when automated data collection procedures constantly update company records. Supply Chain Digest suggested manufacturers may want to build up inventories when they know prices are about to rise. As outside factors change, a flexible data solution helps businesses respond based on prior best practices and projected future needs.