Understanding  Raw Materials

Raw materials refer to substances that are used in the production of goods, either as a primary ingredient or as a component. They are typically sourced from nature, either through extraction or cultivation, and undergo various treatments before becoming usable. Raw materials play a crucial role in the commodity supply chain, which encompasses everything from sourcing to materials procurement and distribution.

What are Raw Materials?

Raw materials are natural substances that are transformed into finished goods through various manufacturing processes. They can be categorized into two types: organic and inorganic. Organic raw materials include agricultural products such as crops, livestock, and timber. Inorganic raw materials include minerals such as aluminum, iron ore, and copper.

How are Raw Materials Sourced?

Raw materials sourcing involves identifying and selecting suppliers who can provide the required quantity and quality of raw materials. This is often a complex process due to factors such as geographical location, transportation infrastructure, and political instability. Companies must also consider ethical issues such as environmental impact and labor practices when sourcing raw materials.

What is Materials Procurement?

Materials procurement involves the purchase of raw materials from suppliers. This process includes negotiations on pricing, payment terms, delivery schedules, and quality assurance. Companies must constantly monitor their supply chain to ensure that raw material procurement is efficient and cost-effective.

What are Supply and Demand Dynamics?

Supply and demand dynamics refer to how market forces influence the availability and pricing of raw materials. In some cases, supply may be limited due to factors such as climate change or political unrest in certain regions. This can lead to price spikes if demand remains strong.

How is Commodity Pricing Determined?

Commodity pricing is determined by a variety of factors including supply and demand dynamics, geopolitical events, currency fluctuations, weather patterns, and technological advancements. Companies must constantly analyze these factors to understand how they will impact prices in the future.

Why is Raw Materials Procurement Important?

Raw materials procurement is important because it directly affects a company's ability to manufacture goods. If a company cannot secure the required quantity or quality of raw materials, they may be forced to halt production or find alternative sources, which can be costly and time-consuming.

How Does Raw Materials Procurement Affect the Environment?

Raw materials procurement can have both positive and negative environmental impacts. On one hand, sustainable sourcing practices can help protect natural resources and reduce carbon emissions. On the other hand, unethical practices such as deforestation and pollution can damage ecosystems and harm local communities.


References:

  1. Harrison, A., & Hoekman, B. (2019). Global value chains: linking trade to development. Cambridge University Press.
  2. Czinkota, M. R., & Ronkainen, I. A. (2013). International marketing (10th ed.). Cengage Learning.
  3. Ouma, S., Kariuki, S., Ndambiri, H., & Ndemo, B. (2017). Commodity value chain analysis of sasanqua camellia and eucalyptus essential oils in Kenya. Journal of Agribusiness in Developing and Emerging Economies.
  4. Ghiani, G., Laporte, G., & Musmanno, R. (2013). Introduction to logistics systems planning and control (Vol. 2). John Wiley & Sons.
  5. Organic Trade Association. (2018). Farm Bill 2018: provisions promoting organic agriculture in the commodity title (No. 10017-02-02). Organic Trade Association.
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