Material Costs

There are numerous factors that determine the company’s material costs.[1] They include:

1. Price negotiation;

2. term negotiation;

3. utilization of discounts offered;

4. systems for assuring that company receives what was ordered at the price that was negotiated;

5. assuring credit for damaged goods or short deliveries;

6. controls that we are paying the negotiated price–once;

7. establishing appropriate inventory levels and maintaining such;

8. controlling obsolescence in inventory and damage in storage;

9. controlling theft;

10. freight negotiation;

11. maintaining adequate inventory to assure ability to fill orders;

12. terms charged;

13. same day billing;

14. And collections.

[1] As the monitor of the material costs is a percentage of revenues, all of these factors can be correct and the problem can fall in pricing. A Company cannot have control of material costs if you have a random system of pricing or if a company fails to have systems of up-dating pricing based upon the doctrine of true costs.