What is Raw materials?

Raw materials matter because they tie up cash before you have anything to sell. If you run low on a key component, production stops even if every other material is in stock. Small stores that make their own products need to track raw materials separately from finished goods so they know what they can actually produce.

Use raw materials tracking to plan purchases around production needs, not just sales forecasts. Check usage rates per finished unit and reorder materials before they run out, factoring in both supplier lead time and the time it takes you to turn materials into sellable products.

Example

A candle maker uses 2 lbs of wax per batch and makes 5 batches a week, so 10 lbs of wax a week. The wax supplier takes 2 weeks to deliver and the owner keeps 1 week of buffer. Reorder point for wax = 10 lbs x (2 + 1) weeks = 30 lbs. When the wax on hand drops to 30 lbs, it's time to order.

Common mistakes

• Counting raw materials and finished goods as the same inventory value, which distorts cost of goods sold.
• Not accounting for waste or offcuts, so actual usable material is less than what is on the books.
• Forgetting that raw material lead time is separate from production time, leading to stockouts of finished products.

Raw materials and SteadyShelf

SteadyShelf tracks finished SKUs you sell on Shopify and handles reordering those, it does not track raw materials or bills of materials used to make them.

SteadyShelf is launching on the Shopify App Store. Join early access to get the install link first.

Related terms

Bill of materials · Work in progress · Finished goods · Lead time · Unit of measure

Full inventory glossary

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