As 2025 comes to an end, many manufacturers have observed some easing in the prices of certain raw materials. However, despite this relief, margins on finished parts continue to shrink, and the overall cost of production keeps increasing.
This contradiction has led to confusion, frustration, and often wrong decision-making within SMEs. The underlying truth is that raw material cost, while important, is only a small part of the overall cost problem.
This manufacturing cost increase is not driven by raw material prices alone, but by hidden operational inefficiencies within SMEs.
In injection moulding, for example, resin prices have remained relatively stable throughout the year, yet margins have still reduced. This clearly indicates that factors beyond raw material pricing are driving cost increases — one of the most common being hidden inefficiencies in production quality and processes.
This article is a part of infocrate’s ongoing analysis of operational cost behavior in SME manufacturing environments
The Raw Material Price Myth
When calculating part cost, raw material is often treated as the primary cost driver. In reality, it is only one component. Other major contributors include cycle time, shift rate, machine utilization, and process stability.
When focus remains only on resin prices, operational cost leaks remain hidden. This creates a situation where raw material prices appear stable, yet part costs continue to increase quietly in the background.
In short, stable raw material prices do not guarantee stable production costs.
Hidden Cost Drivers Behind Manufacturing cost increase
Process Inefficiency
One of the most significant contributors to rising costs is process inefficiency. Conversion cost calculations usually assume a fixed cycle time, but in practice this cycle time often drifts.
For example, if a material requires a specific drying temperature and time but is not monitored closely, retained moisture can lead to material clustering. This restricts material flow, delays refilling, and increases cycle time. Over-drying can cause similar issues, where material becomes powdery and feeding becomes inconsistent, again increasing cycle time.
These issues often go unnoticed unless closely monitored, yet even a one-second increase in cycle time can have a meaningful impact on cost. Machine downtime and trial-and-error settings during mould changes further add to this inefficiency.
Quality Losses and Rejections
Quality losses are another major but frequently underestimated cost driver. Scrap costs are rarely calculated accurately, and reworked parts are often absorbed into normal production.
As a result, rework costs remain hidden while margins continue to shrink. Minor defects may seem insignificant initially, but during mass production they accumulate and multiply rapidly, especially in high-volume operations.
Inventory and Working Capital Drag
Inventory behavior also plays a crucial role. Excess stock is often procured as a safety buffer against market uncertainty. While this may appear prudent, it introduces risks such as material aging and degradation, which can lead to quality issues and increased production cost.
Even when degradation does not occur, capital invested in excess inventory remains blocked. This working capital pressure indirectly increases overall cost and reduces operational flexibility.
MOQ Pressure and Supplier Behavior
This behavior is often intensified by MOQ pressures, as supplier terms quietly change. Bulk purchases made to meet higher MOQs frequently result in dead stock, blocked cash, and rising indirect costs — all without any visible increase in raw material prices.
Why SMEs Often Misread Their Own Cost Data
Another common issue is outdated costing sheets. Many SMEs fail to update their costing structures for years, even though electricity tariffs, wages, and utility costs continue to rise.
Treating overheads as fixed and relying only on accounting data — which reflects past performance — hides current cost leakages. Accounting data explains what has already happened, not what is currently eroding margins. Without regular updates, cost pressure builds silently until margins are visibly impacted.
Injection Moulding: Why Cost Pressure Is Felt Faster
In injection moulding, these issues are amplified. With short cycle times and multi-cavity tools producing large volumes, even minor inefficiencies can drastically impact costs.
A one-second increase in cycle time or a small rise in rejection rate can lead to significant output loss over an entire shift. When this effect compounds across multiple cavities and machines, the impact on margins becomes substantial — often without being immediately visible in standard reports.
The Real Question SMEs Should Be Asking
Instead of asking, “Why are raw material prices increasing?”, a more useful question is:
- Where is cost leaking silently?
- Which process variable has drifted?
- Which assumption in our costing is outdated?
- What behavior has changed without being noticed?
Cost pressure is rarely caused by one major event. It is usually the result of multiple small shifts accumulating over time.
What to Observe (Not What to Do)
Rather than jumping to quick fixes, SMEs benefit more from observing certain signals closely:
- Consistency of actual cycle time versus assumed cycle time
- Rejection and rework levels relative to accepted production
- Inventory age and movement, not just inventory value
- Supplier behavior changes beyond price, such as MOQs and lead times
- Capacity utilization compared to planned output
These observations often reveal cost behavior that pricing data alone cannot explain.
For many SMEs, this manufacturing cost increase remains invisible until margins are already damaged.
Author’s Note
This article is based on practical observations from manufacturing and injection moulding environments. It focuses on understanding cost behavior and operational dynamics rather than offering predictions or prescriptive advice. The objective is to help SMEs develop clearer insight into why margins erode, even when visible cost indicators appear stable.
Author: Virendra