Increasing Cost Pressures Are a Major Concern for Manufacturers

Dec. 11, 2008
Anxiety over energy costs has more than doubled since 2007.

While general cost pressures continue to be the main challenge for manufacturers globally, rising energy costs have reached a new level of concern, according to TBM Consulting Group's sixth annual "Multinational Manufacturing Pulse." The study reveals that manufacturers' level of anxiety over rising energy costs has more than doubled since last year, resulting in an increased commitment to eliminate waste.

Conducted in Q3 of 2008, the survey polled 1,406 executives from mid-sized to large firms in six major manufacturing countries in the western hemisphere -- the United States, United Kingdom, Germany, France, Mexico and Brazil. The study was done in conjunction withIndustryWeekin the United States.

The majority of respondents (53%) ranked 'cost pressures' as the biggest hurdle to success in the year ahead. Nevertheless, 33% identified 'rising energy costs' as a source of angst, a dramatic increase from last year's responses at 11%. 'Quality issues' and 'people issues' continued to be challenges for manufacturers in the nations surveyed.

Maintaining a Competitive Edge in Tough Economic Times
More than half (55%) of all manufacturers polled say they feel challenged by the current economic climate. The study also revealed that executives in the six industrial nations surveyed are taking measures to keep market share and maintain a competitive edge during this tumultuous time. Some of these steps include:

  • Improving quality (46%)
  • Shortening lead times (45%)
  • Increase ways to better connect with customers (38%).

Additionally, to allay cost pressures and rising energy prices, more than half (59%) of all respondents say they are increasing efforts to eliminate waste.

With a global recession looming, manufacturers are seeking creative ways to put their companies in a financial position to successfully weather this economic storm." According to Anand Sharma, CEO of TBM Consulting, "Eliminating waste is the first step toward relief. Companies should be looking to convert assets into cash, reduce static inventories, eliminate unprofitable SKUs, and speed up receivables. Attacking processes that reduce working capital and improve cash flow will allow manufacturers to make investments, finance acquisitions, and grow when others are struggling to survive."

In thinking about ways to respond to the current changes in the marketplace, more than a quarter of manufacturers (27%) say the most opportunity lies in value chain improvements. Other areas that respondents foresee potential include:

  • Business improvement programs (25%)
  • New product development/innovation (18%)
  • Market expansion (16%).

Economy Hasn't Gotten in the Way of Productivity
Despite economic turmoil, nearly three-quarters (72%) of manufacturers in all six nations reported productivity gains over the past year and identified continuous improvement (lean) as the leading source of improved productivity (US -- 72%; UK -- 63%; Germany -- 67%; France -- 53%; Brazil -- 69%; Mexico -- 36%). Additionally, the majority (62%) of respondents reported that they are still somewhat satisfied with their company's level of innovation.

"While it seems that numerous companies already have lean initiatives in place, they must challenge themselves to do better," says Sharma. "There is a huge opportunity for manufactures to grow their business by taking lean to the next level -- beyond the shop floor and into all aspects of the organization."

Resistance to change (35%) continues to be the greatest barrier to productivity improvement followed by lack of leadership (15%) and lack of employee training (11%).

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