Rising prices forcing manufacturers to be more innovative

MANUFACTURERS in the West Midlands are having to be increasingly innovative to combat rising costs and a shortage of raw materials, a report out today suggests.

According to a survey published today by EEF and RBS almost half of manufacturing firms in the region have redesigned products or processes in response to rising materials prices.

In addition, nearly two-thirds of companies have sought different sourcing options, while 40% of companies have substituted some inputs with cheaper alternatives – a more common action amongst companies concerned about availability constraints of some materials.

Almost two thirds (63%) of companies have increased their internal monitoring and modelling of prices, while 40% have looked to renegotiate existing contracts with customers.
 
Richard Halstead, EEF Midlands region director, said: “This is a stark illustration of the impact of high material costs which manufacturers have been grappling with throughout the recovery.

“However, whilst most attention is focused on the inflationary aspects of these costs, the flipside is another story of the extent to which companies are finding innovative solutions to deal with them.”
 
He said what was clear from the survey was that there was not a simple equation for managing rising and volatile materials costs.  

“Manufacturers have so far deftly navigated the issue using the internal tools available and being agile in managing customer relations and procurement strategies.  And this is an issue that companies are saying they will be keeping a close eye on in the months ahead,” he added.
 
Jason Necker, regional director for RBS Corporate and Institutional Banking, said the volatile situation on commodity prices was a continuing headache for manufacturers.

“They have led to compressed margins and intense efforts to remain competitive, but the battle is not over,” he said.

“Ever more creative solutions, including different methods of hedging and financing, will continue to be sought. The need for innovation and creativity across the sector remains as high as ever.”
 
Looking ahead to the next 12 months, the organisations said commodity prices were likely to remain volatile and that most manufacturers were building likely to build further price increases into their business plans.  
 
Some financial options such as offering longer payment terms or vendor finance to customers, additional external finance or the use of financial instruments in response to price rises coming down the supply chain may also be explored.