There are numerous factors that determine the company’s material costs. 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.
 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.