Upturn means price increases for manufacturers

4 May 2010

4 May 2010 | Nick Martindale

Buyers in the manufacturing sector are facing rising prices and extended delays in delivery as the global economy begins to emerge from recession, a survey suggests.

Figures released by financial information services company Markit last month revealed input prices for euro-zone manufacturers rose in April for the seventh month in a row, while goods are taking longer to deliver than at any point since July 2000.

Rob Dobson, senior economist at Markit Economics, said: “Manufacturers have been starting to demand raw materials to a greater extent but suppliers also reduced their stock sharply during the downturn so they can’t satisfy demand.

“We’re now seeing more of a sellers’ market and this is allowing suppliers to reflect the increase in commodity prices and pass that on to manufacturers.”

Manufacturers’ organisation EEF said companies based in the UK were also experiencing pressure from suppliers to increase prices, causing difficulties for many.

The changing environment means buyers will need to develop new strategies to cope with requests for price increases.

Andrew Williamson, principal adviser, procurement advisory services, at KPMG, said: “Buyers need to look at all of the cost and work out which elements will go up and which will come down. They should also help suppliers evaluate their own sourcing strategy.”

Paul Steele, chairman of consultancy PMMS, said buyers also needed to take a longer-term view and should identify what they would need to buy in three or four years’ time and establish how to secure that supply.

He said: “I’d advise any buyer to make sure they know who owns the companies they’re buying from and what their targets and objectives are. If you’re vulnerable, look elsewhere.”

The EEF said downward pressures on margins meant companies were unlikely to be able to pass on price increases to customers.

Lee Hopley, chief economist, said: “If there continues to be a squeeze on margins it will have implications for investment decisions in other parts of the business such as new capital equipment and the ability to take on new workers.”

The price rises were down to increasing global demand for commodities such as iron, chemicals and oil and the weakness of the euro caused by concern over the state of Greece’s public finances, the Markit survey found.

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