Cost Containment and the Economy

Congress and the President are getting ready to put a few hundred bucks into the pockets of most American families as a way to keep the economic pump primed. But how much difference will that make if manufacturers try to take advantage by passing along their higher costs across a broad spectrum of commodities?

Record commodity prices, such as $100-a-barrel oil, record wheat and soaring precious metal prices, have penetrated many of our supply chains. However, it’s pretty clear that consumers are not in any mood to simply absorb higher prices. Cost containment strategies by manufacturers are imperative to avoid a sharp reduction in consumer spending.

To avoid a spike in consumer costs, take action now:

Conduct cost analyses. Manufacturers should analyze supplier costs to understand the mix of material, labor, overhead and profit that are driving costs higher. An understanding of costs puts manufacturers in a better position to negotiate with suppliers seeking price increases.

Don’t accept price increases as “business as usual.”
Manufacturers should make suppliers work hard for price increases by demanding three months notice, in writing, of all increase requests and insist that they are accompanied by a detailed statement of the actions the supplier has taken to reduce or eliminate the need for an increase.

Know your options.
Investigate alternative materials, designs and suppliers now, before you face requests for higher prices. Manufacturers who don’t have options and market intelligence are at a disadvantage when they negotiate with suppliers.

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