If you’re in manufacturing, you’ve noticed raw material costs going up in the last few years. Be it metals, plastics, commodities, or energy, manufacturers are paying more than ever for their inputs. A recent survey found that 62% of manufacturers called raw material price increases a top challenge in 2024.

These increased costs are not a faze, they’re the brand new norm. Nonetheless, manufacturers can not pass on these significant input cost pressures to their consumers because of fierce industry competition.

So what should the manufacturers do?

This article explains why raw material prices are rising, how it’s affecting manufacturers, and what companies can do about it through proactive cost management in manufacturing.

What's Driving Raw Material Costs Up?

Let’s start with the “why.” Prices for many raw materials have increased sharply in the last few years. Here are some of the main reasons:

1. High Global Demand

As economies recovered from COVID-19, demand for manufactured goods increased. This increased demand for inputs, including steel, aluminum, chemical substances, and packaging materials. The IMF reported that 2023 worldwide manufacturing output increased by over 3.2% but still struggled to meet soaring demand throughout supply chains.

2. Supply Chain Disruptions

Global supply chains experienced shortages and bullwhips due to pandemic-related factory closings, shipping delays, and port congestion. Before it could completely recover, the world saw multiple black swan events, be it the Red Sea crisis, the Russia-Ukraine conflict, tariff tensions, and whatnot. These disruptions have resulted in longer lead times for raw material deliveries, further complicating inventory and production planning. Even in 2025, these issues haven’t gone away, with new geopolitical tensions disrupting the supply chains.

Natural disasters or political unrest are a perfect recipe for rising costs.

3. Energy Prices

Energy plays a significant role in raw material costs. Many materials are energy-intensive to produce or transport. When oil and gas prices rise, so does the cost of producing and moving materials. In 2022 and 2023, energy prices jumped by 30-50% in some regions, significantly increasing operational expenses for manufacturers.

4. Geopolitical Tensions

Global politics impact trade routes, export restrictions, and import duties. For example, the war in Ukraine and trade frictions between the US and China have had consequences on energy prices, rare earth, and metals.

5. Commodity Market Volatility

Global commodities markets strongly influence raw materials costs. Copper, cocoa, palm oil, aluminum, and even wood pulp prices fluctuate considerably because of forecasts, speculation, and supply disruptions.

The World Bank reported metal prices rose by almost 25% between 2020 and 2023, while chemical inputs increased similarly.

So, the last 5 years have been the toughest set of 5 consecutive years that have created such havoc on global manufacturing and supply chains? What does this mean for the manufacturers? Let’s understand:

What does Increasing Raw Material Costs Mean for Manufacturers?

The impact of increasing raw material costs is multi-dimensional for any manufacturer. It impacts everything from the cash flows to the bottom line. Rising raw material costs can significantly reduce overall profitability for manufacturers. Let’s discuss these in detail:

1. Thinner Profit Margins

Rising input costs directly affect margins. Profits suffer if manufacturers can not pass those costs onto customers through higher prices. In 2023, 58% of global manufacturers reported lower margins despite increased revenue. Monitoring actual costs is essential for manufacturers to understand and address margin erosion.

2. Pricing Pressure

On the other hand, raising prices isn’t easy either. Customers push back, and competitors may undercut you. This creates a squeeze: input costs increase, but selling prices can’t always keep pace.

Maintaining a flexible budget is crucial for manufacturers to navigate pricing pressures effectively.

3. Greater Forecasting Uncertainty

Fluctuating raw material prices make planning challenging. Many manufacturers now build cost variability into their budgets, often adding 10–20% buffers for key materials, and must determine appropriate cost buffers to account for price fluctuations.

4. Inventory Challenges

Some companies respond to price increases by stockpiling materials, which ties up cash and increases warehousing costs. Companies must carefully assess the resources needed to balance inventory costs and production requirements. Others try just-in-time strategies and get hit by delays or price hikes.

5. Risk of Supply Disruption

When supply is tight and costs are high, it's harder to secure reliable sources. This creates more risk of shortages, which can stop production lines.

Using Proactive Cost Management for Minimizing the Impact

Rising costs may be out of your hands, but proactive cost management helps you prepare and respond. Here are 6 steps to minimize the impact of the rising costs:

1. Improve Spend Visibility

As the popular saying goes, you cannot improve what you cannot measure. Start by understanding your cost structure. Where are raw material costs concentrated? Use digital tools to track trends and identify high-spend areas.

Platforms like Holocene help centralize supplier data, pricing trends, and purchase volumes in one place. Continuous monitoring is essential to ensure up-to-date insights into cost trends and spending.

2. Review Supplier Mix

Key materials are risky when you depend on only one or maybe two suppliers. Look for dual sourcing, regional suppliers, or options. Keep a healthy share of business. Diversifying keeps you from being disrupted in case one source becomes too costly or unavailable. A diversified supplier mix can also improve purchasing flexibility and reduce procurement risks.

3. Lock in Prices

When prices rise, negotiate longer-term contracts with fixed prices or volume discounts. Even three- to six-month contracts provide greater security than spot buying in a volatile market. However, locking a price occasionally has the drawback of locking in the commodity, and after that, the price begins to drop.

Securing fixed-price contracts can also help manufacturers avoid unexpected cost overruns by providing better cost control in fluctuating markets.

4. Reduce Waste and Improve Yield

Every bit of raw material you waste hits harder when prices are high. Focus on scrap reduction, better inventory control, and process optimization to get more output per input.

5. Collaborate with Suppliers

Suppliers may offer insights, substitutions, or better terms, but only if you have a strong relationship with them. Set up regular check-ins to discuss price forecasts, capacity, and alternatives.

According to McKinsey, companies with collaborative supplier relationships are twice as likely to manage cost shocks successfully.

6. Invest in Design Changes

Can your products use less material or switch to a cheaper alternative? Work with engineering and R&D to explore redesigns that reduce raw input needs. Many firms switch to lighter, recycled, or modular parts to save costs. Design changes can also result in more cost-effective production processes and material usage.

The same fundamental principles hold true regardless of the industry, whether it is electronics, industrial parts, or consumer goods.

The Role of Technology in Cost Management

Today’s manufacturing cost challenges are too complex to manage with spreadsheets, emails, and ERP alone. Digital tools help manufacturers analyze trends, optimize sourcing, and improve forecasting, and give manufacturers the ability to:

Visualize cost drivers across product lines, locations, and materials.
Benchmark suppliers on cost, quality, and delivery.
Simulate cost changes based on market scenarios.
Improve team coordination between procurement, planning, and finance.

These capabilities help teams move from reactive firefighting to strategic planning.

By leveraging digital tools and analytics, manufacturers can optimize cost management processes and achieve better financial outcomes.

Be Proactive, Not Reactive with Holocene

Raw material costs will likely remain high and unpredictable for the rest of 2025. That’s the reality of global manufacturing today, but that doesn’t mean you’re helpless.

With the right strategy, you can:

Control waste
Strengthen supplier networks
Negotiate smarter contracts
Plan better

In other words, you can manage what you can control and be ready for what you can’t.

At Holocene, we help manufacturers respond faster and smarter to rising costs. Our supply chain intelligence tools are designed to help teams:

Understand their cost structure
Monitor raw material trends
Make sourcing decisions that are backed by data
Improve the supply chain’s resilience to market swings

We give you visibility and control of your sourcing strategy. We can help you turn cost pressure into a competitive advantage. As you consider your next steps in implementing proactive cost management strategies, think about how the right tools and support can make a difference.

Interested in learning more about material cost management in your supply chain? Contact Holocene for a quick walkthrough.

Be Proactive, Not Reactive with Holocene

Frequently Asked Questions

1. How can manufacturers predict raw material costs in an uncertain market?

Predicting costs in today’s volatile environment requires real-time data, trend analysis, and scenario planning. Tools like Holocene allow manufacturers to simulate different market conditions and estimate future prices to build a more resilient cost management plan.

2. What’s the most effective way to manage costs without hurting product quality?

The key is to focus on strategic sourcing, waste reduction, and collaborative supplier relationships. By identifying unnecessary expenses — such as overstocking, inefficient procurement, or material waste — companies can manage costs while maintaining output and quality.

3. What role do digital services play in raw material cost management?

Digital services like Holocene centralize cost data, monitor pricing trends, and benchmark supplier performance. They enable smarter decisions and faster responses, helping manufacturers reduce risk and strengthen their cost management plan.

4. When should manufacturers lock in prices with suppliers?

Manufacturers should consider locking prices when forecasts indicate further increases or high volatility. A well-informed strategy based on predicted costs helps determine the right timing and duration of contracts to avoid reactive decisions.

5. How can manufacturers avoid unnecessary expenses during supply chain disruptions?

By improving spend visibility and planning for alternate sourcing strategies, manufacturers can reduce emergency purchases and stockouts. Using tools to track spend in real time helps flag unnecessary expenses before they snowball.

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