No. 1 Economic Concern in 2008 for Small to Mid Sized Manufacturers: Raw Material Pricing

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I can’t say that I am shocked by these survey results which were just released over the weekend by buying consortium Prime Advantage. According to the press release, of the 100 member companies that responded to the survey, 46% said that raw materials, “which include stainless steel, nickel, copper and other metals and plastics were a major concern in 2008.” Energy costs came second with 17.5% citing this as the biggest cost pressure.

Given the past two years, it is no surprise that raw material price pressures remain top of mind for purchasing professionals and owners of small businesses. What is ironic is that 66% of respondents “plan significant capital improvements in 2008, including equipment upgrades such as press brakes, turret punch presses, plus equipment for laser cutting, robotic welding and stamping”. On top of that, 59% of respondents expect a revenue boost in 2008.

But aren’t we in a recession? Well, maybe but not all manufacturing has been feeling the pinch. A colleague of mine who is a turnaround professional recently told me that he has seen manufacturing companies whom he thought would never export again, do more of that of late than in the last 10 years combined! Just last week Caterpillar (my favorite economic bell-weather) reported a 20% jump in exports of machinery and equipment in 2007, according to this Crain’s Chicago article. So it’s no wonder that we see companies worry about raw material pricing yet continue to make capital investments.

The state of the US dollar is undoubtedly a boon to many US manufacturers as their exports are now much more competitive. Foreign competition as my partner Stuart rightly points out, is down at the moment but what happens when, “they [US manufacturers] will once again face their normal level of foreign competition… I wonder how bullish they would be then?” Good point but if you are of the school of thought that the dollar had been “wrongly” priced previously due to certain “bubble” industry sectors and the dollar continues to trade as it has been for awhile, we’ll continue to see strong exports. Of course what goes up also goes down and vice versa.

But one thing we can bank on, it appears certain that raw material pricing will remain volatile and a concern for manufacturers.

Editor’s Note: If you are concerned about raw material volatility, take our free MetalSaver quiz for cost savings ideas. –Lisa Reisman

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