How Supplying Material Can Cost You More

When you hire a company to build you something, the general thought is that if you supply the company with material, you're going to save money. If the company sources the material, they're going to markup the price they paid for it. Seems simple enough; why would you pay extra for something you can do yourself? Seems like a win-win right? You can save by getting the material yourself, and the company doesn't have to spend their time sourcing the material.

Although it seems like a win-win, there are some issues that can (and will) occur.

Follow up:

Lets say you supply Company A with some MDF, Plywood, and Acrylic Sheet to make your 'widgets' for you.

What if Company A Ruins your Material?

If you supplied just enough material to finish the job, and they accidently wreck some of it, it's up to you to get more. This situation is frustrating for both parties. Because of the situation, you have to go get more material at a cost to you, your project gets stalled, and Company A looks bad for ruining your material and causing delays. Even worse, you might have to pay the labor for the time they spent ruining your material.

If Company A had sourced the material on their own, they likely would have bought a little extra (just in case), or had extra in stock. This way, if something does go wrong, Company A can just use the extra. Everything stays on time, there's no unexpected cost overruns, and you never even know about it.

They'll Get The Money From You in Other Ways

Company A has a list of their own suppliers. They've built relationships with these suppliers over many years. Company A buys in large volumes, therefore gets discounts on material. Because of this, they can pay less for the material, allowing them to mark it up a little (to match retail prices). The margin for mark-up pays for company A's overhead. So with their discount, and their mark-up, the material ends up costing the same as what you paid. But if you supply the material on your own, Company A looses out on the mark up, and subsequently doesn't get the extra cash for their overhead expenses. Now Company A is forced find other ways to make that money.

They know that Company B down the street charges $75.00/hr, so they can't charge $80.00. So they'll have to find creative ways like marking up hardware, finishing, or skimping in other areas.

From your standpoint, you paid for the material either way. You could have bought from Company A (who is the company that will manufacturing for you) and paid the same, only putting a little extra cash in their pockets.

Company A Can Actually Save You Money

You had no idea, but Company A actually stocks their own material. The exact same material that you just gave them and paid retail price for. They bought it a year ago at half the price. The material they have in stock was leftover from another job. So if you're supplying them with $30.00 sheets of MDF, they could have charged you $15.00 for them, because it's already been paid for once, and they don't want to keep paying to stock it.

Company A Might Refuse The Material

If you know you're going to need X amount of material, and you buy it without letting Company A know, what happens if they refuse to work with the material? Now you're out of pocket, and you have to try to return your material.

Why would they refuse the material?

Company A might refuse the material for any number of reasons (including those listed above). If it's wood, they don't know the history of the material. What if the wood was sitting face down on the floor? It could have small rocks in it that will ruin Company A's machinery. If it's plastic, they don't know the moisture content. So they'll have to dry the material at a cost to you.

It Leaves the door open for excuses

Company A uses your supplied material, and builds your widgets for you. 2 weeks later your widgets fall apart. You go back to Company A for an explanation. All they have to say is that they can't be responsible for bad materials because they were supplied by you.

So What Have we Learned?

Supplying your own material (without asking) creates too many risks for a project to run smoothly. There's more than can go wrong than right.

There are certain situations where supplying your own material can be beneficial. For example, if the material is unique and you don't want to give up your suppliers name. The best thing to do is to ask Company A first, and come to an agreement before hand.

If you just assume, and send over your own material, the company will no doubt be unhappy. You don't want them being unhappy when they're the ones making the widgets for you. If one of the above situations happen, everyone looks bad. If everyone looks bad, everyone is unhappy.

Disclaimer

This article has nothing to do with any customers, projects, or situations Industrial Shape & Form ltd. has had in the past. It is simply a cautionary tale.