Comparing prices in manufacturing: How to create genuine transparency in raw material and material costs

If you work in purchasing, controlling, or cost accounting, you are probably very familiar with this situation. You receive two quotes for the same material. At first glance, one supplier seems attractively priced, while the other is significantly more expensive. And then comes the typical question from management:

"Why don't we go for the cheaper offer?"

Many comparison processes begin with this question. However, they are often based on incomplete or even distorted information. There are few areas in industry where decisions are made as intuitively as when comparing manufacturing costs and supplier prices. This is not due to a lack of competence, but rather a lack of transparency. But how can this professional transparency be achieved ?

Why price comparisons in manufacturing are rarely clear-cut

An example illustrates this point. You receive quotes for polypropylene, a widely used plastic. Supplier A quotes €1.87 per kilogram, while supplier B offers €1.62. At first glance, the decision seems clear. In many companies, you would go straight into final negotiations with supplier B.

However, upon closer inspection, a completely different picture often emerges. The lower price may be outdated and based on market data that is long obsolete. Perhaps the price of raw materials has been rising for weeks, and the offer does not reflect the current situation. The more expensive supplier, on the other hand, is guided by real market costs and is therefore closer to the actual manufacturing conditions (delivery costs, basic costs, salaries, etc.). Supplier A would be forward-looking and implement a sudden and high price increase in the near future.

A price is never just a number. It is the result of market developments, cost structures, surcharges, energy prices, freight costs, and availability. If you only compare the numbers, you are essentially comparing nothing at all.

What a comparison of manufacturing costs really means

Many companies talk about comparing manufacturing costs. In practice, however, this can mean very different things. Sometimes it involves evaluating supplier quotes, sometimes calculating the costs of their own products, and sometimes internal benchmarks between plants. However, a sound comparison is always based on three interrelated elements.

1. Understanding current market prices

Production costs only provide a clear picture if they are based on real market prices. Anyone who makes calculations using outdated or estimated raw material prices risks making incorrect decisions. Cost structures change on a weekly basis, sometimes even from one day to the next. Without a transparent market overview, distorted cost profiles arise, leading to internal discussions and weak negotiating positions externally.

2. Recognize discrepancies between market price and offer

A supplier's quoted price and the actual market price are two different things. Suppliers are subject to their own economic constraints. They factor in risks, add surcharges, or respond to regional market conditions. A fair comparison is only possible if you can compare both values and consciously classify the difference.

3. Understanding the influence of price components

An offer may appear expensive at first glance, but at the same time have a clear price structure. Another may appear inexpensive, but contain hidden items that only become apparent later. When comparing manufacturing costs, it is important to recognize which elements are fixed and which are variable. Only then will it become clear how the price is actually composed.

Common mistakes that distort price comparisons

The same patterns repeat themselves in many companies. They are well-intentioned, but lead to false conclusions.

1. Final prices are compared without price structure

An offer appears attractive because the final price seems low. However, this price often does not include energy surcharges, freight costs, or hedging against market fluctuations. Another offer is higher, but completely transparent. Only when both price structures are visible side by side does it become clear which price is truly fair.

2. Historical and current data are mixed together

Another common mistake is to compare historical values with current offers. The market is constantly changing. If you use old values as a basis, you lose touch with the real price level. Negotiations then begin with false expectations and often end in deadlocked discussions.

3. Material prices are considered in isolation.

Raw material prices have a direct impact on manufacturing costs. However, these influences are not visible in many calculations. A price comparison only makes sense if it takes into account the development of material prices.

The solution—a commodity price tracker that creates transparency

Many of the challenges described can be solved if the basis for calculations becomes stable. This is exactly where the costdata® commodity price tracker comes in. It provides reliable and always up-to-date market data that you can integrate directly into your price comparisons.

It makes market prices immediately visible by showing the actual price development of the respective material. This allows you to see at a glance whether an offer is realistic or deviates significantly from the market.

This allows supplier prices to be assessed objectively. You now know where the market price lies, and every negotiation will become clearer. You can explain why a price seems too high or too low and avoid lengthy discussions about interpretations.

Furthermore, cost calculations become more reliable thanks to the integration of current market data, which leads to realistic manufacturing costs. Your calculations become more accurate and decision-making processes become more reliable.

Price comparisons need a clear basis

Comparing prices seems simple at first glance. However, without a transparent basis, misjudgments, misunderstandings, and uncertain decisions can arise. If you work with current market data and compare offer prices with actual raw material prices, you will gain an objective view of your manufacturing costs.

The costdata® commodity price trackersupports you in doing just that. It provides you with the data you need to correctly classify supplier offers and reliably evaluate your manufacturing costs. If you want to put your calculations on a solid footing, this step begins with genuine market transparency.