The Raw Reality

Manufacturers grow more concerned about rising material and energy costs.

Over the past year, manufacturers have grown decidedly more jaded about the rising cost of raw materials. That sentiment isn't going to be changing any time soon, according to a recent survey conducted by Prime Advantage, a buying consortium serving mid-sized manufacturers.

The survey collected data from 72 senior-level manufacturing representatives, including business owners, vice presidents of procurement and purchasing directors. Their input confirms that raw material and energy costs are still the top cost pressures for the second half of 2008 -- just as they were in a previous survey conducted in January. However, while those findings are hardly surprising, the significant and rapid change in perception should be at least somewhat revealing.

In the first survey, just 43% of respondents said they were apprehensive about the rising cost of raw materials (including stainless steel, nickel, copper and other metals, and plastics). Just six months later, 93% agree that raw material costs will continue to be an economic concern for the remainder of 2008.

Energy costs are even further off the charts, identified as a concern by only 17.5% of respondents earlier this year. The new survey indicates that number has jumped to 67%. In addition, over half shifted their top sourcing priority from "improving efficiency measurements" to "identifying reliable and cost-efficient sources for raw materials."

"The bottom line is that pricing pressures for raw materials and commodities will likely continue to be an obstacle to success for many North American manufacturers," notes Louise O'Sullivan, president and founder of Prime Advantage.

Capital spending was initially predicted to have no change from 2007 by 52% of respondents in the first survey. An increase was even expected by 36%. However, 39% of those surveyed now say capital spending is expected to decrease in the next six months, while 42% expect capital spending to remain unchanged.

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