Raw materials
Raw materials are the unprocessed or base inputs a manufacturer converts into product: steel coil, aluminum billet, resin pellets, copper wire, wafers, bulk chemicals. In inventory accounting they are the first of three classes, ahead of work in progress and finished goods. Because their prices track commodity markets, raw materials are the part of product cost most often indexed in supplier contracts.
Examples
Index clause in action: A molded housing contains 142 grams of PA66. The contract reprices quarterly against a published resin index; when resin moves from $3.10 to $3.55 per kilogram, the piece price adjusts by $0.064. Conversion cost is untouched, so the negotiation stays about productivity, not resin.
Positional classification: A service center slits master coil into blanks: its finished good. The stamper books those blanks as raw material, forms brackets, and ships them to a vehicle plant, where they arrive as purchased components on the OEM's BOM.
Definition
"Raw" is positional, not absolute. A steel mill's finished good is a stamper's raw material; the stamper's finished bracket arrives at an OEM as a purchased component. Classification depends on where you stand in the chain, which is why discussions about raw material content need a definition before they need a spreadsheet.
The sharper distinction is raw materials versus direct materials. Direct materials are everything that becomes part of the product, including purchased components and subassemblies; raw materials are the unprocessed subset. A connector on the BOM is a direct material, but the raw materials are the resin and copper that made it.
The procurement consequence is commodity exposure. Raw material prices move with markets the supplier does not control, so commodity management works to separate market movement from supplier margin: index clauses reprice the material share mechanically while conversion cost stays negotiated.
That only works if you know the material content per part, which is a bill of materials discipline; clean BOM data tells you the resin grams and steel kilograms behind each line before a market spike turns every quote into an argument.
Frequently asked questions
What are raw materials in manufacturing?
Raw materials are the unprocessed or base inputs a manufacturer converts into product, such as steel coil, aluminum billet, resin pellets, copper wire, wafers, and bulk chemicals. In inventory accounting they are the first of three classes, ahead of work in progress and finished goods.
What is the difference between raw materials and direct materials?
Direct materials are everything that becomes part of the product, including purchased components and subassemblies, while raw materials are the unprocessed subset. A connector on a bill of materials is a direct material, and the resin and copper that made the connector are the raw materials.
Why is raw a relative term in supply chains?
Raw material classification depends on where a company stands in the chain. A steel mill's finished good is a stamper's raw material, and the stamper's finished bracket arrives at an OEM as a purchased component. Discussions about raw material content therefore need a shared definition before anyone builds a spreadsheet.
How do raw material prices affect supplier contracts?
Raw material prices track commodity markets the supplier does not control, so contracts often index the material share of price while conversion cost stays negotiated. In one example, a molded housing containing 142 grams of PA66 repriced quarterly against a published resin index: a move from $3.10 to $3.55 per kilogram adjusted the piece price by $0.064 with conversion cost untouched.
What data do you need before indexing raw material costs?
Index clauses only work when the buyer knows the material content per part, which is a bill of materials discipline. Clean BOM data shows the resin grams and steel kilograms behind each line, so a market spike produces a mechanical price adjustment instead of an argument over every quote.
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