Manufacturers Seen Bolstering Efforts to Manage Inflation

Stamford, CT — May 2, 2008 — Surging costs for transportation, energy and raw materials are prompting manufacturers to bolster their efforts to manage inflation, but only the strongest brands are finding that they can pass significant price increases on to their customers, according to a new survey from supply chain consultancy Archstone Consulting.

The survey revealed current approaches used by consumer packaged goods and general manufacturing companies to address the recent spike in critical commodity and raw material costs.

"The dual challenge of managing cost inflation and soft customer demand have become the critical business issue for US corporations during 2008," said Todd D. Lavieri, president and CEO of Archstone Consulting. "Success in managing levels of cost inflation which have not been seen since the 1970s, and addressing an economic slowdown will be essential to lift sagging stock prices."

Source of Cost Inflation

The most common source of cost inflation has stemmed from the recent rise in commodity prices, particularly in the following categories:

  • Transportation: 89 percent of companies have experienced high or moderate transportation-related cost inflation.
  • Energy: 84 percent of companies have experienced high or moderate energy cost inflation.
  • Raw materials: 75 percent of companies have experienced high or moderate energy cost inflation.

Strategies for Addressing Cost Inflation

  • Effective Price Increases: 44 percent of companies plan effective price increases, which entails direct price increase, reducing the size of product sold at same price, or reduction in promotions.
  • Cost Off-sets: 57 percent of companies studied are planning cost reductions elsewhere in operations to off-set cost inflation. The most common sources of cost off-sets are reductions in material use and waste.