Survey: Raw Material, Energy Costs Raise Concerns

North American industrial manufacturers say raw material and energy costs continue to top the list of cost pressure concerns for the second half of 2008.

CHICAGO -- Raw material and energy costs continue to top the list of cost pressure concerns for the second half of 2008, but this time they have become an overwhelming worry among North American manufacturers, according to a survey by Prime Advantage.

Prime Advantage, a buying consortium for midsized industrial manufacturers, revealed its second Group Outlook Survey found that 93 percent of the group’s manufacturing members agree that material costs will be an economic concern for the rest of 2008. Energy costs following closely behind at 67 percent.

The results of the first survey, released in January, revealed that the group's manufacturing members were apprehensive of rising material (43 percent) and energy (17.5 percent) costs.

Survey data was collected from 72 senior-level representatives of industrial manufacturing companies, including business owners, vice presidents of procurement and purchasing directors.

"Other indicators, such as the Institute for Supply Management's June 2008 Manufacturing ISM Report On Business reflect that rising commodity prices, combined with a fluctuating Purchasing Managers Index, are putting great pressure on U.S. manufacturers," said O'Sullivan. "The bottom line is that pricing pressures for raw materials and commodities will likely continue to be an obstacle to success for many North American manufacturers."

Unlike the first Group Outlook Survey, inflation is now the third highest concern, with 39 percent in agreement (up 31 percentage points from January). Logistics and supply chain costs followed closely at 38 percent -- 21.6 percentage points higher than the first Group Outlook Survey. Healthcare, foreign competition, overhead, and labor were among the other cost pressure concerns identified by survey respondents.

Contrary to the first Group Outlook Survey, a higher percentage of respondents now expect capital spending to decrease or stay the same as the first half of 2008. Thirty-nine percent of Prime Advantage members expect capital spending to decrease in the next six months and 42 percent expect capital spending to remain unchanged. Previously, Prime Advantage members predicted no change from 2007 (52 percent) or an increase (36 percent) from 2007 in capital spending.
 
The Prime Advantage Group Outlook Survey also showed confidence for employment opportunities in the second half of 2008. While only 17 percent expect job cuts within the next six months, another 17 percent expect job growth and 66 percent expect to make no changes and keep their current employee base at the same level.

"These results show that U.S. manufacturers are cautiously optimistic about the rest of the year, in spite of current economic concerns," O'Sullivan said.

More in Supply Chain