Raw Materials 101: Everything You Need to Know About the Basics

Raw material is any substance extracted from the earth or produced by plants or animals that is used in manufacturing or construction. It’s the most basic form of a material used to make finished goods. 

In this article, I’ll dive into what it is, how it’s used, and how it affects the finished product.

Raw Materials: The Building Blocks of Production

Raw materials are the basic materials used in the production of goods, finished products, energy, or intermediate materials that are feedstock for future finished products. In other words, raw materials are the building blocks of production. They are the primary commodities that companies use to produce the goods and services that we use every day.

The Different Types of Raw Materials

There are two main types of raw materials: direct and indirect. Direct raw materials are materials that are used directly in the production of a good, while indirect raw materials are materials that are not directly used in the production of a good, but are necessary for the production process. Some common examples of direct raw materials include:

• Wood for furniture
• Milk for cheese
• Fabric for clothing
• Lumber for tables
• Water for beverages

Indirect raw materials, on the other hand, include items like equipment and machinery, which are necessary for the production process but are not directly incorporated into the final product.

The Role of Raw Materials in Manufacturing

Raw materials are a key input in the manufacturing process. They are the substances that are extracted or bought from exchanges and businesses, and are used to convert into finished goods. Raw materials are classified based on their nature and are associated with a wide range of commodities, including agriculture, forest, and industrial products.

The Difference Between Raw Materials and Intermediate Goods

Raw materials and intermediate goods are often thought of as the same thing, but there is a key difference between the two. Raw materials are unprocessed materials that are used directly in the production of a good, while intermediate goods are materials that have already been processed and are used to produce other goods. For example, lumber is a raw material used to produce furniture, while a sheet of fabric is an intermediate good used to produce a finished piece of clothing.

The Takeaways

• Raw materials are the basic materials used in the production of goods and services.
• There are two main types of raw materials: direct and indirect.
• Direct raw materials are materials that are used directly in the production of a good, while indirect raw materials are materials that are necessary for the production process but are not directly incorporated into the final product.
• Raw materials are a key input in the manufacturing process and are associated with a wide range of commodities.
• Raw materials have standalone value in the market and are a key factor in determining the cost of goods sold and the final price of a product.
• Raw materials and intermediate goods are different, with raw materials being unprocessed materials used directly in production and intermediate goods being processed materials used to produce other goods.

The difference between direct and indirect raw materials is significant in terms of their impact on manufacturing costs. Direct raw materials are a primary commodity and are directly related to the production of goods. They are charged as a unit cost and are calculated into the total cost of goods sold. Indirect raw materials, on the other hand, are charged as overhead costs and are calculated into the total cost of manufacturing.

Understanding the difference between direct and indirect raw materials is essential for calculating the total cost of manufacturing and for providing a smooth production process. While direct and indirect raw materials may seem similar, they play different roles in the manufacturing process and have different classifications in terms of accounting and commodity terms.

Exploring the Different Types of Raw Materials Used in Manufacturing

Synthetic raw materials are materials that are not found in nature and are created using a manufacturing method. These materials are critical in creating finished products and are often used in place of natural raw materials due to their unique qualities. Examples of synthetic raw materials include:

• Glue: Used for binding materials together.
• Plastic: Used for making a wide range of products, including toys, household items, and machinery.
• Lumber: Used for making furniture, paper, and other items.

Determining the Cost of Raw Materials

Raw materials are a critical component in the manufacturing process, and the cost of these materials can have a significant impact on the cost of the finished product. To determine the cost of raw materials, manufacturers must take into account the following factors:

• The location of the manufacturer: Raw materials that are located closer to the manufacturer will be less expensive due to reduced transportation costs.
• The amount of raw materials needed: The more raw materials needed, the higher the cost.
• The life cycle of the raw material: Raw materials that have a longer life cycle will be less expensive due to reduced replacement costs.
• The preceding description of the raw material: The more detailed the description of the raw material, the easier it is to determine the cost.

Managing Raw Materials to Conserve Resources and Reduce Greenhouse Gas Emissions

Managing raw materials is critical in allowing manufacturers to conserve resources and reduce greenhouse gas emissions. To manage raw materials effectively, manufacturers must take the following steps:

• Avoid using materials that are not necessary for the manufacturing process.
• Use renewable raw materials whenever possible.
• Reduce the amount of raw materials used in the manufacturing process.
• Subsequently, process raw materials to transform them into finished products.

Conclusion

So, raw materials are the building blocks of production. They’re used to make finished products, like clothing, furniture, and food. 

You should now know the difference between raw materials and finished products, and why raw materials are so important to the manufacturing process.

I'm Joost Nusselder, the founder of Tools Doctor, content marketer, and dad. I love trying out new equipment, and together with my team I've been creating in-depth blog articles since 2016 to help loyal readers with tools & crafting tips.