JÄGER Busi­ness Blog

Rub­ber & Plas­tics — Cheap does not always make sense

16.02.2022   | Tim Eltze

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Price-focused pur­chas­ing strate­gies are a dou­ble-edged sword. On the one hand, it is impor­tant to min­i­mize pro­cure­ment costs to keep the orga­ni­za­tion as prof­itable as pos­si­ble. On the oth­er hand, price is rarely the only rel­e­vant fac­tor. Com­pa­nies that want to pro­cure rub­ber and plas­tic com­po­nents as cheap­ly as pos­si­ble, for exam­ple, always accept cut­backs else­where, whether con­scious­ly or unconsciously.

Whether the low­er pur­chase price is worth it in view of these trade-offs depends on the con­text. The chal­lenge is to decide when pur­chas­ing should and should not work with low-cost suppliers.

How do low prices for rub­ber and plas­tics come about?

A basic prin­ci­ple of busi­ness eco­nom­ics is that the price of a prod­uct must exceed its unit costs in the long term for it to be prof­itable. If a sup­pli­er offers goods at a low­er price than the com­pe­ti­tion, this means that its costs are also cor­re­spond­ing­ly low­er. As a result, cus­tomers have to make con­ces­sions else­where, be it in terms of qual­i­ty or scope of services.

In the rub­ber and plas­tics indus­try, qual­i­ty refers to mate­r­i­al prop­er­ties. A low­er-qual­i­ty mate­r­i­al, for exam­ple, has a short­er ser­vice life, exhibits opti­cal defects or has less chem­i­cal resis­tance than high-price mate­ri­als. In some cas­es, this is the result of low­er qual­i­ty stan­dards, for exam­ple with sup­pli­ers from cer­tain low-wage coun­tries. As a rule, how­ev­er, the dif­fer­ence in qual­i­ty is delib­er­ate. In this way, the sup­pli­er serves a demand for mate­ri­als in areas of appli­ca­tion where pre­mi­um prod­ucts have neg­li­gi­ble added value.

In addi­tion, cus­tomers in the low-price sec­tor have to make sac­ri­fices in terms of per­for­mance. Rub­ber and plas­tic com­po­nents from low-cost sup­pli­ers are gen­er­al­ly stan­dard­ized and can only be cus­tomized to a lim­it­ed extent. In addi­tion, these sup­pli­ers do not offer their cus­tomers any con­sult­ing ser­vices. They do not assist with mate­r­i­al selec­tion or pro­vide input for prod­uct devel­op­ment. Often, they only have a lim­it­ed port­fo­lio that can be ordered “as shown.”

There are also lim­i­ta­tions in terms of deliv­ery con­di­tions. Where oth­er sup­pli­ers accom­mo­date their cus­tomers, low-cost sup­pli­ers are rel­a­tive­ly inflex­i­ble. They often sup­ply goods only in the form of indi­vid­ual orders. They offer nei­ther demand-ori­ent­ed par­tial deliv­er­ies nor frame­work con­tracts or just-in-time concepts.

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Con­sul­ta­tion on the design of tech­ni­cal components

When should and shouldn´t you buy cheap rub­ber and plas­tic parts?

Low-cost rub­ber and plas­tic sup­pli­ers may have their weak­ness­es, but they still occu­py an impor­tant niche. Sit­u­a­tion­al­ly, it makes per­fect sense to use low­er qual­i­ty materials.

For exam­ple, dis­pos­ables that serve only as trans­port pro­tec­tion do not have to meet high stan­dards. Their task is to pre­vent dam­age to the trans­port­ed goods. Dura­bil­i­ty or chem­i­cal resis­tance are of sec­ondary impor­tance in such a case. Even non-vis­i­ble com­po­nents can make sac­ri­fices, espe­cial­ly in terms of hap­tics and appearance.

The same applies to the scope of ser­vices. Not every com­pa­ny wants con­sult­ing ser­vices from a rub­ber or plas­tics sup­pli­er. Some cus­tomers are able to assess exact­ly what they want and are only look­ing for a favor­able price. This is espe­cial­ly true when it comes to triv­ial appli­ca­tions with no spe­cial require­ments for the material.

There are also dif­fer­ent cas­es when it comes to deliv­ery con­di­tions. Some com­pa­nies have no need for indi­vid­ual deliv­ery con­cepts. Often, indi­vid­ual orders deliv­ered in one batch are quite suf­fi­cient, for exam­ple for one-off projects.

For most com­pa­nies, how­ev­er, these are indi­vid­ual cas­es. As a rule, qual­i­ty and scope of ser­vices play an impor­tant role and put a high­er pur­chase price into perspective.

Espe­cial­ly in the rub­ber and plas­tics sec­tor, there are often spe­cif­ic require­ments for mate­ri­als, depend­ing on the area of appli­ca­tion. Com­pa­nies are almost always look­ing for a mate­r­i­al that has cer­tain chem­i­cal or phys­i­cal resis­tances, can with­stand cer­tain tem­per­a­ture ranges or has spe­cial cer­ti­fi­ca­tions. Hav­ing a sup­ply part­ner on hand who also offers cus­tomized mate­ri­als and pro­vides his know-how for the selec­tion is worth its weight in gold in these cases.

The same applies to trans­port con­di­tions. If a com­po­nent is ear­marked for vol­ume pro­duc­tion, most cus­tomers want needs-based deliv­ery agree­ments and pro­duc­tion-ori­ent­ed pick­ing — both ser­vices that are lack­ing in the low-price segment.

Choos­ing sup­pli­ers carefully

In prin­ci­ple, there is noth­ing to be said against sourc­ing rub­ber and plas­tic com­po­nents from low-cost sup­pli­ers. How­ev­er, some com­pa­nies do this for the wrong rea­sons. They act pure­ly price-dri­ven, ignor­ing fac­tors that may argue against this type of procurement.

Fre­quent­ly com­pa­nies opt for rub­ber or plas­tic prod­ucts that do not meet their require­ments 100 per­cent because of the low price. For exam­ple, we had a cus­tomer who need­ed pro­tec­tive mats for his work­shop. Despite advice, he opt­ed for the cheap­est option, which, how­ev­er, had strong odors. After numer­ous com­plaints from the employ­ees about the strong odor, the cus­tomer had to revise his deci­sion and replace the pro­tec­tive mats.

Inter­nal con­flicts of inter­est are often to blame for such cas­es. The pur­chas­ing depart­ment is giv­en the task of keep­ing costs as low as pos­si­ble, while the design depart­ment wants to opti­mize the qual­i­ty of the com­po­nents. In some cas­es, the com­pli­ance depart­ment also requests as many cer­ti­fi­ca­tions as pos­si­ble to be on the safe side, which makes the sit­u­a­tion even more complicated.

Since these con­flicts can­not be eas­i­ly resolved, the finan­cial argu­ments usu­al­ly tip the scales in the end. Where­by, for the sake of fair­ness, it should be men­tioned that it also works the oth­er way around: some­times, for exam­ple, the design depart­ment wants over­sized high-price mate­ri­als that unnec­es­sar­i­ly increase the cost of the product.

Rub­ber and plas­tics sup­pli­ers are also not entire­ly inno­cent in this sit­u­a­tion. Their offers are often dif­fi­cult to com­pare because they are not trans­par­ent enough. Cus­tomers some­times com­pare pure pur­chase prices with prices that already include pack­ag­ing and trans­port. How­ev­er, their pur­chas­ing depart­ment over­looks the fact that anoth­er sup­pli­er might be a more favor­able alter­na­tive when it comes to nego­ti­at­ing spe­cif­ic deliv­ery con­cepts and pick­ing. Some low-cost sup­pli­ers do not show all costs trans­par­ent­ly, but only cal­cu­late indi­vid­ual items ret­ro­spec­tive­ly. This makes com­par­i­son with the com­pe­ti­tion much more difficult.

Con­clu­sion

Strong price focus is a wide­spread pur­chas­ing strat­e­gy, but it can cause prob­lems. Com­pa­nies that want to buy rub­ber and plas­tics as cheap­ly as pos­si­ble sim­pli­fy a com­plex deci­sion-mak­ing process and there­fore often end up with solu­tions that need improve­ment. Low-cost sup­pli­ers have their rea­son to exist, but they are not ide­al in all sit­u­a­tions, because a low price always requires sac­ri­fices elsewhere.

The best way out of this sit­u­a­tion is trans­paren­cy. Com­pa­nies should define their require­ments as pre­cise­ly as pos­si­ble and include all costs when select­ing sup­pli­ers in order to achieve the high­est pos­si­ble lev­el of com­pa­ra­bil­i­ty. This cre­ates an opti­mal infor­ma­tion basis for select­ing the right supplier.

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Author: Tim Eltze

Tim Eltze has been work­ing in the field of rub­ber and plas­tic prod­ucts for more than 20 years and has in-depth exper­tise in these areas. He is cur­rent­ly employed by Jäger as Region­al Man­ag­er North and Site Man­ag­er Hamburg. 

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