Manufacturing: Raw materials, energy push costs; capital spending up

Raw material and energy costs headed the list of manufacturing cost concerns, according a recent survey, though the spending outlook seems positive.


Chicago – Raw material and energy costs headed the list of cost concerns, according to nearly 100 respondents to a survey conducted in January 2008.

Prime Advantage

, a buying consortium for small and midsized manufacturers, polled its members on issues that will shape their economic plans this year and released its findings. Economics can influence automation customers, manufacturers, and system integrators.

Respondents to the

Group Outlook Survey for 2008

included business owners, vice presidents of procurement, and purchasing directors throughout North America. Forty-six percent of respondents agreed that costs of raw materials (stainless steel, nickel, copper, and other metals and plastics) were a major concern in 2008. Energy costs were next at 17.5%, and logistics and supply chain costs followed at 16.4%. Other concerns included inflation (8%), labor (4%), foreign competition (3.4%), overhead (2.8%), and healthcare (1.7%).

Prime Advantage president and founder Louise O’Sullivan said, “More than rising energy costs or inflation, the uncertainty around pricing pressures for raw materials continues to be an obstacle to success for many small and mid-sized manufacturers. However, the survey also noted a positive outlook for revenue expectations and hiring, with 59% indicating a revenue boost.” Just 1% indicated that job cuts could occur in 2008, while 23% plan new hires, and 76% plan to keep the current employee base at the same level as 2007, she said.

The survey reported that 66% of members plan significant capital improvements in 2008, including equipment upgrades such as press brakes and turret punch presses, plus equipment for laser cutting, robotic welding and stamping. This is supported by findings from the Business Roundtable’s CEO Economic Outlook survey for fourth quarter 2007, in which CEOs predicted a 35% increase in capital spending over the first half 2008, said O’Sullivan.

Also, 88% survey respondents indicate planned efforts to improve at least one of the following in 2008: cost savings, efficiency measurements, or supplier diversity goals. Another 11% will address IT systems improvements, including investments in new applications, data visibility, and data accuracy, while 2% plan investments in industry certifications or education.

When it comes to managing or containing raw materials costs, Prime Advantage gives its clients an edge, says O’Sullivan. “As a buying consortium, we’ve been successful in addressing that exact concern. Since its inception, Prime Advantage has returned more than $60 million in rebates and discounts to its members; these are real savings that are helping U.S. manufacturers gain a powerful competitive advantage in the face of growing international competition,” she said.

Expected 2008 cost increases for small, mid-sized North American manufacturers

Healthcare 1.7%
Overhead 2.8%
Foreign Competition 3.4%
Labor 4.0%
Inflation 8.0%
Logistics/Supply Chain 16.4%
Energy 17.5%
Raw Materials 46.0%
Source: Prime Advantage Group Outlook Survey 2008

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