This week, in partnership with RBS, we’ve launched our latest publication series, Manufacturing Focus.
Manufacturing Focus is a twice-yearly publication focusing in-depth on current issues of importance to manufacturers. Our first issue looks at managing materials prices - something that's been in the news a lot in the year so far.
Why is this such a big deal to manufacturers?
Because materials constitute a large proportion of manufacturers costs – often over 50% and for some as high as 80%.
And what we’ve seen over the last 18-24 months (perhaps further if you include the period pre-financial crisis) is an environment where prices have been quite out of the ordinary.
Firstly attention was focused on strong rises that gathered pace in 2010 and spilled over into 2011 – well over 50% year-on-year price increases for many key industrial inputs. For one electronics manufacturer, a basket of rare earth metals have increased an astonishing four to six fold.
Rising prices have had consequences not just for producers but consumers too and this can be seen in the correlation between input prices and both export and domestic price increases, as shown on the below chart (industrial materials index RHS, balance of companies reporting increase in prices LHS). Indeed given the increase in their own costs its remarkable manufacturers' have not increased their own prices more than they have.
More recently some drop-offs in prices have fed concerns the global economy may be slowing.
While a global economic slowdown is cause for concern in itself, recent price falls have meant volatility is also proving a challenging issue for manufacturers to manage.
Lags in responses or adjustments to contracts can mean manufacturers wearing the difference on some cost movements.
Managing materials prices is moving up the agenda for manufacturers, with 48% of companies citing managing prices as one of their top three challenge to growing their business (second only to skills shortages as a top three challenge).
This compares with 33% of companies that saw managing price and availability of materials as an issue in 2010.
Availability rates a separate mention this year too with 15% of companies rating it as one of their top three challenges.