Yet another manufacturing survey this month has warned that increasing commodity prices are a serious threat to growth prospects in the US economy. More than half (66 percent) of the respondents in a national survey of US manufacturing CFOs and senior controllers conducted by Grant Thornton LLP said that their companies intend to raise the sales price of their goods over the next six months, up from 35 percent six months earlier.
The results are not surprising, said Wally Gruenes, Grant Thornton’s national managing partner for Consumer and Industrial Products, in a press release:
This was to be expected given the increase in commodity raw material costs experienced by most manufacturers over the last 12 months. With the precipitous increase in these commodity prices in recent months, manufacturers have no choice but to pass along such increases to their customers. While they have done a good job of improving operational efficiencies and driving down costs over the past three years, manufacturers simply could not drive down their conversion costs enough to absorb these raw material price increases.
On the upside, 47 percent of CFOs surveyed expect company hiring to increase (only 18 percent intended to increase head count six months ago).
Respondents were asked to identify which type(s) of pricing pressure they were most concerned about, and could select more than one answer. Respondents were most concerned about raw materials such as cotton, metals, and petroleum-based product (96 percent), followed by energy (58 percent); employee benefits (58 percent); company insurance, not including health care (2 percent); and other (10 percent).
With the exception of cotton, all of the raw materials of concern have an impact on the electronics supply chain. None of the respondents expect prices to decrease; 34 percent expect prices to remain the same. Additionally, 80 percent of those surveyed believe the recent earthquake in Japan will have an impact on the US economy.
Well, remember from history when Germany was experiencing hyper-inflation, the U.S. was not. If currency inflation strikes the U.S., then a manufacturer will need to be worried about dollar-denominated business, and any exhanges from other currencies into dollars and back again, rather than local trades in countries not experiencing inflation, no? As prices go up in one currency, they may drop in others, or at least that's how I understand it. if I were a buyer or manufacturer, I'd have to analyze where my revenue and expenses come from, analyze the international risks (including local currency inflation), and try to hedge accordingly. Hedging could be done not only financially, but operationally, by strategically locating and in the process hopefully diversifiying manufacturing, sales, and purchasing. This way, an unexpected situation in any one place can be isolated and perhaps contained, as far as its effect on business operations go.
I actually believe that the rebuilding of Japan will require materials such as steel copper and other raw materials. That will stimulate economy growth. This may not lead to inflation. For example, steel companies in the u.s due to the fact that people are not investing. Hence when
Japan starts to execute the rebuild efforts, this will increase demand for the laggard commodity
The burnt of bad economy anyway affects the smaller companies first. They have to look for ways to keep whatever cash reserve they have safe. These times are as hard: the price of the raw material is going high, there is short supply of parts and there is inflation.
It seems that inflation or the market sentiments are driving the cost of raw material high. I was reading quarterly report of Samsung. Even though the net income has gone up by 7% on year-on-year basis, the net profit has gone down by 30% year-on-year basis. Most of the loss in net profit was due to high raw material cost. It seems that inflation is not equally distributed.
I've been reading a lot lately how inflation is driven more by stock market sentiment rather than actual prices. It's true that the prices of metals--especially copper--are going sky high and gas and oil prices are up--but I am not hearing about these issues on earnings calls. Fluctuations in price are part of doing business--it's the response of the stock market that seems to cause the most concern. The disconnect between market sentiment and actual results seems to be widening, and I view market fluctautions with more skepticism than I used to.
Inflation has become matter of global concern. Not only increasing commodity prices are a serious threat to growth prospects in the US but also its serious threat to global growth prospects. And the fact that Japan needs to rebuilt its economy might makes things even worse.
I think the smaller companies would not be able to survive the pressure of inflation as they do not have surplus funds to keep the business running when there is shortage of cash. The bigger corporations will be able to survive though.
EBN Dialogue enables and encourages you to participate in live chats with notable leaders and luminaries. Not only editors and journalists, but the entire EBN community is able to comment and ask questions. Listed below are upcoming and archived chats.
Thailand Stages a Comeback Join EBN contributor Jennifer Baljko on Thursday August 23, 2012, at 11:00 a.m. EST for a live chat on how electronic manufacturers in Thailand have shored up their supply chain to reduce the impact of future natural disasters.
Microsoft Surface: Potential Winners & Losers What are the implications for the electronics industry supply chain of Microsoft Corp.'s decision to launch its own tablet PC? Join industry veteran and EE Times' systems and OEM expert Rick Merritt on Tuesday, July 3, at 12:00 pm EDT for a Live Chat on this subject.
Join EBN contributor Jennifer Baljko on Thursday August 23, 2012, at 11:00 a.m. EST for a live chat on how electronic manufacturers in Thailand have shored up their supply chain to reduce the impact of future natural disasters.
Peter Drucker famously said "Trying to predict the future is like trying to drive down a country road at night with no lights while looking out the back window." Yet in the razor's-edge world of electronics—with a lean supply chain and just-in-time demands—the need to know the future is vital.
While no one really can accurately predict the future, we can take guidance from another Drucker saying which is the best way to predict the future is to create it.
You've heard the saying "the No. 1 supply chain risk is your people." That hasn't always been the case. But today's complex global supply chain requires a new type of multitalented employee. It's one who understands, finance, marketing, economics, is savvy with technology, graceful with relationships and can think analytically.
Where are these people? Are universities properly preparing the next generation supply chain professionals? How do train your existing workforce for these new, demanding positions?
Brian Fuller, editor-in-chief of EBN, will lead a 60-minute Avnet Velocity panel discussion that will ask and answer these and other questions swirling around today's supply-chain talent challenges.