This is the second article of a 5-part series on How to Embed Forecasting Capability into Aluminum Sourcing Practices. Read Part 1, on assessing your price risk and exposure, here.
How to Identify Cost Drivers
When placing metal purchase orders, manufacturers need to have a solid understanding of the cost breakdown of their purchases. In this manner, they can understand where increases/decreases in their raw materials purchases come from. The graphic below illustrates an example of cost breakdown for aluminum purchases:
So let’s break out each aluminum cost driver, shall we? Then we’ll get to the best practices.