Business Week Discovers Costs

In the February 5 issue of Business Week, the widely-read Outlook Column’s subtitle is: “Business is Focused on Cost Control, Not Prices.” Welcome to the world of manufacturing!

If you have read this blog before, you know that we have been emphasizing the dilemma that U.S. manufacturers find themselves in. Manufacturers face rising costs for health care, taxes, natural gas, etc. But they have no pricing power, so the prices they can charge generally remain flat. In the past decade, manufacturing prices have increased by 4 percent while the overall CPI has increased by close to 60 percent. Wow, how do you manage in that environment?

Here’s what BW says and they are right on,

The overarching change, however, is the way globalization and technology have altered corporate pricing behavior in the face of rising costs. The resulting intensification of competitive forces limits the ability of companies to simply mark up based on cost increases. It has made cost control, rather than pricing power, the driving force behind corporate profit margins and earnings growth…..

Author James Cooper goes on to look at several components of cost pressures: health care, performance-based pay and technology. It’s definitely worth reading and, if you want to hear a short interview with Cooper about the cost pressures, click here.

The Manufacturing Institute, NAM and the Manufacturers Alliance/MAPI published The Escalating Cost Crisis last year, showing that structural costs in the US add 31.7 percent to the costs of manufacturing, when compared with similar costs in nine major trading partners. This is must-read for anyone interested in manufacturing. To read that report, click here.