Innovation, vigilance common themes of response to price pressures

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Yesterday we launched our first edition of Manufacturing Focus, a new series of EEF publications sponsored by RBS and looking in detail at matters of importance to manufacturers.

The first edition focuses on managing materials prices.

As you'd expect with such a diverse sector in the UK, response to managing prices by different companies vary greatly. However there are some common themes.

The two most common responses, each employed by two thirds of respondents we questioned, were to monitor what's happening to prices more closely and to seek alternative sourcing options.

Perhaps this isn't surprising; these are relatively low-cost options for addressing the phenomenon of sharply rising prices.

It's the more sophisticated approaches that manufacturers are employing that are arguably more interesting.Traditional methods for handling materials price rises have been shown up in the context of recent strong rises.

For example trigger points in contracts, which allow prices to be renegotiated once a certain increase is reached, are not effective against sustained strong rises – meaning much more resource is being put into the process of negotiation.

This puts the spotlight on innovation.

As you'd expect our manufacturers are in an almost constant state of innovation as they seek to stay ahead of their global competitors.

But the impact of rising material prices has given the process of innovation an even higher importance – particularly innovations to remove cost.

For example one of the companies we spoke to, a manufacturer of industrial coatings, created an explicit incentive scheme for their coatings formula designers to eliminate a set percentage of costs.

This is not a simple process as coatings users set exacting quality standards that any new reformulation cannot compromise.

Another example of innovation is the redesign of the customer offering put forward by manufacturers. Adding visible value to customers is an important corollary for maintaining an ongoing relationship where external factors may be pushing up product prices.

One engine manufacturer we spoke to offered their in-house design expertise to customers to redesign cabs to take new models of engine.

So while no two companies approach the challenge of managing materials prices in quite the same way, from the straightforward responses to the more tailored there are common themes.

Heightened vigilance and innovation are the orders of the day.

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Media Team 020 7654 1576

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