Manufacturers Not Standing Still For Inflation

May 14, 2008
Price increases are one solution, study shows.

Rising commodity prices and soft customer demand are tandem challenges facing manufacturers today. Finding ways to combat those rising prices will separate the successful manufacturer from the rest.

A recent survey by Archstone Consulting of 35 consumer packaged goods and general manufacturers shows quite clearly that cost inflation is taking a toll. Nearly nine in 10 of the companies reported high to moderate cost inflation related to transportation; 84% are experiencing energy inflation; and three-quarters say raw material costs are on the rise.

"Only 14% of responding companies experienced high levels of inflation for labor, and only 3% of respondents saw a jump in sales, general and administrative costs," noted Archstone's David P. Sievers, consumer products and retail practice leader. "This is good news and suggests inflation has not yet spread into broader labor and overhead costs, and we see this continuing in the near term."

Those companies experiencing cost inflation said they are most like to pursue the following options:

  • 44% of the study participants said they plan effective price increases, either by directly increasing the price of products, reducing the size of the product but keeping the price the same; or reducing promotions.
  • 57% of the companies said they are planning cost reductions elsewhere in operations to offset cost inflation.

"Success in managing levels of cost inflation, which have not been seen since the 1970s, and addressing an economic slowdown will be essential to lift sagging stock prices," said Todd D. Lavieri, Archstone Consulting's president and CEO.

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