The wire and cable industry has been witnessing immense growth in the last couple of years. Reports expect the market to grow at a CAGR of 5% between 2020 and 2025. As companies look to keep up with this surge in demand, they need to be able to manufacture, insulate, and package highly conductive materials in the right manner. But conductive materials, such as copper and aluminum, are relatively expensive; their prices are constantly fluctuating, making it difficult for cable manufacturers and distributors to keep pace with the volatility.
The Troubles of Using Copper
In the wire and cable industry, copper is a core component in cable manufacturing because it is safer to use while being resistant to heat. Because it is electrically conductive and ductile, it is a preferred metal for electrical wires. But copper is also expensive and accounts for a large portion of the material costs of a cable – sometimes up to 90% of the total costs.
Because of the high costs of copper, cable manufacturers and distributors are often stressed about material losses in production and cutting. However, an even graver business issue with the use of copper (and aluminum) is its extremely volatile prices. For a CFO, this volatility in copper prices can result in several inconceivable losses: a reduction in price means manufacturers with lots of inventory in factory or warehouse that loses half its value. An increase in price means manufacturers spend a lot more on purchasing copper only to have the price of copper fall again in a few days.
Managing the Risk of Volatile Prices
The volatility in copper prices demonstrates why cable manufacturers and distributors need to efficiently manage the risk of volatile material prices. They need to build strategies in a way that helps them:
- Adjust the cable prices for the actual copper prices at invoicing and transfer the risk of volatility to customers
- Hedge against copper prices and pass the risk to a bank – at a cost
- Frequently update list prices to minimize the impact of changing copper prices
Although each of these strategies has its advantages and disadvantages, what they have in common is the administrative overhead that comes with implementation. All strategies must deal with varying materials, material weights, price units for materials and the cable, varying currencies, and different rules that are applicable for different customers.
The Benefits of Using a Cable Industry-Specific ERP
Cable industry-specific ERP solutions like CableERP offer a Precious Material module that is designed to minimize overheads related to copper pricing. The module:
- Brings full transparency into changing copper prices while eliminating the risk of human mistakes that easily happen in complex calculations
- Integrates seamlessly with Dynamics 365 systems, helping manufacturers have fully automated material pricing in place and reduce the risk of metal price volatility
- Delivers the required management controls to manage the risks related to copper inventory valuation
- Helps cable manufacturers protect themselves against material price change risks while protecting the margin of sales order lines, by adjusting the sales prices of the cable, based on the actual copper price
- Supports hedging strategies and validates the conditions of the hedge contract against the actual deliveries to the customer
- Helps in mass updating price lists, based on revised prices of materials such as copper, and eliminating the efforts and risks of manual adjustments
Integrating Dynamics 365 with CableERP – helps wire and cable companies overcome challenges specific to the industry. By developing custom capabilities across length management, drum and reel administration, precious material pricing, cutting management, production optimization, and fiber management, wire and cable companies unleash enormous business value and meet business goals with ease and efficiency.
Synoptek, with its deep Dynamics 365 implementation experience, has recently partnered with InnoVites, an Independent Software Vendor that builds solutions exclusively for the Wire and Cable industry.