Raw materials such as cement, aggregates, and fly ash account for over half of the average cost of a cubic yard of ready-mixed concrete. Material costs vary significantly depending on a producer's location and volume. While material expenses are the largest cost component for producers, ready-mix operations have high inventory turnover that helps offset these costs. Producers can work to control material costs through careful tracking of deliveries and quantities, regular auditing of mix designs, and comparing usage to production volumes.

1. S
ince 1982, ready-mixed
concrete industry pretax
profit has averaged only
2.7% of sales. According to
the Ready Mixed Concrete
Industry Data Report, published by
the National Ready Mixed Concrete
Association (NRMCA), Silver
Springs, Md., and compiled by Profit
Planning Group, Boulder, Colo.,
1995 pretax profit was a mere $2.44
per yard. So how can producers in-
crease margins?
A place to start is by focusing on a
company’s largest cost component:
Raw materials. In 1995, material
costs accounted for 52% of the aver-
age price of a yard of ready-mixed
concrete sold in the United States
(Figure 1). And selling a larger vol-
ume of concrete doesn’t reduce this
percentage as you might expect. Ac-
cording to the NRMCA survey, a
producer’s materials costs are affect-
ed more by geographic location than
by yards of concrete produced annu-
ally (Figure 2). Limited supplies of
high-quality aggregates in some ar-
eas and aggregate transportation
costs account for this.
According to NRMCA surveys,
material costs are rising fastest of all
producers’ expenses. Since 1993, ma-
terial costs for a cubic yard of con-
crete have increased by about $4.25
(Figure 3). Fortunately, during the
same time, the average sales price of
ready-mixed concrete also rose in
many markets. But with domestic ce-
ment mills at full production capaci-
ty and quality aggregate reserves
shrinking, raw material costs are ex-
pected to keep rising.
Material component costing
According to the 1995 NRMCA in-
dustry survey, the cost of portland
cement, fly ash, and other admix-
tures in a typical cubic yard of ready-
mixed concrete was $18.25, about
60% of that yard’s average selling
price (Figure 4). In a 1994 survey,
costs for fly ash and admixtures were
each reported separately from ce-
ment. Each ingredient was reported
to constitute 3% of a typical yard’s
material costs.
According to the survey, fine and
coarse aggregates constituted about
38% of a typical yard’s material costs.
Aggregate delivery costs were included
in this percentage. Concrete produc-
tion plants located at aggregate pro-
duction sites reported lower aggregate
costs. But due to the combined opera-
tions’ remote locations, costs of trans-
portation to jobsites offset lower ag-
gregate costs.
Unlike other manufacturing indus-
Controlling material costs
Raw material accounts for more than half of the selling price of a cubic yard of ready-mixed concrete.
Here’s how to increase margins by understanding what contributes to these costs.
Figure 1. Cost components
of average selling price ($57.92)
per cubic yard of concrete
Source for charts and tables: 1995 Ready Mixed Concrete Industry Data Report, NRMCA
By company size
(production yards)
Under 100,000 49.2
100,000 to 300,000 52.5
300,000 to 500,000 53.2
Over 500,000 54.6
By region
Eastern 50.5
Great Lakes 50.8
Southeastern 55.3
South Central 57.0
North Central 48.7
Rocky Mountain 50.4
Pacific 51.5
Figure 2. Material-
costs-vs.-average-
selling-price ratio
per cubic yard of concrete

2. tries with high material cost compo-
nents of the finished product, ready-
mix producers have a high inventory
turnover index. The index is a mea-
sure of asset productivity, represent-
ing the number of times in a year pro-
ducers must replenish their
inventories of raw material. In 1995,
the typical producer replenished total
inventory 24 times, or about every 15
days (Figure 5).
From an accountant’s view, the rela-
tively high inventory turnover index is
a good sign. Short inventory holding
periods suggest strong sales activity
supported by an efficient production
method. But because a typical con-
crete producer’s average collection pe-
riod is 42 days, he will purchase his
inventory about three times before
customers pay for their first delivered
load. Concrete producers need to be
aware of these payment lags as they
negotiate material prices and terms.
Producers should pass along antici-
pated working capital interest charges
or supplier credit costs to customers
who pay late. Don’t become a lender
for your customer.
Controlling material costs
Every operation can save on materi-
als. Here are some tips:
s Document all incoming raw materi-
al deliveries daily. Assign an em-
ployee at each plant to sign and col-
lect all delivery tickets. Many
companies weigh each delivered
load and use computer programs to
track materials received against sup-
pliers’ invoices.
s Conduct physical inventories
monthly and reconcile them with
computer-generated perpetual in-
ventories. If physical inventory
quantities are not within 3% to 5%
of book numbers, take weekly physi-
cal inventories.
s Regularly check aggregate grada-
tions and mix yields. Random yield
checks will help production man-
agers to detect batching equipment
deficiencies.
s Review your commonly used mix
designs annually with the help of a
local testing laboratory or a ce-
ment or admixture supplier’s
technical service department.
These reviews can help ensure that
you’re making the best use of ad-
mixtures and supplementary ce-
menting materials.
s Review the mix designs on customer
shipments daily. Computer batching
systems can store more than 1,000
mix designs. Confirm that perfor-
mance-specified mixes with the low-
Typical Sales Sales Sales Sales
concrete <$5 $5-$10 $10-$20 >$20
producer million million million million
Average collection period (days) 42.2 32.8 42.6 47.5 50.4
Inventory turnover 24.2 17.5 22.4 26.3 25.2
Figure 5. Asset productivity
Figure 3. 1993-1995 component
costs of average selling price
per cubic yard of concrete
Figure 4. 1995
material costs
as a percentage of
material costs @ $30.59/yd.

3. est material costs are assigned to the
correct project and customer. For
instance, it is not cost-effective to
send a 5000-psi mix to a non-spec
footing job.
s Compare current month-ending
material purchase quantities to last
year’s totals. Compare cement usage
against mix design produced; e.g. if
you sold more cubic yards of 4000-
psi mix than 3000-psi mix in the
current year, cement costs should be
proportionally higher.
s Use a control chart to graph cylin-
der-break test reports and pay close
attention to design vs. actual
strengths. When actual strengths are
higher than needed, based on stan-
dard deviation, you’re giving away
cement.
Bill Allen is a management consultant
for the ready-mixed concrete industry
and owner of Allen & Associates,
Memphis, Tenn.
The 1996 NRMCA/RMC 2000
Ready Mixed Concrete Indus-
try Data Report is available from
the National Ready Mixed Con-
crete Association, Silver Springs,
Md. The report provides bench-
marking information from more
than 150 companies. Owners and
financial officers can compare in-
come statements, balance sheets,
and other operating data to their
marketing and financial activities
in 1996.
The data analysis in the report
was compiled by the Profit Plan-
ning Group, Boulder, Colo., under
contract to NRMCA. All individual
company responses are kept
strictly confidential by the Profit
Planning Group. No one from
NRMCA or its staff has access to
any individual result.
For information contact the
NRMCA at 301-587-1400.
1996 Industry Data
Report available
PUBLICATION #J970475a
Copyright © 1997, The Aberdeen Group
All rights reserved