Manufacturers react to commodity price rises

Posted on 22 Aug 2011 by The Manufacturer

As the prices of commodities become more volatile due to shortages, an increasing number of manufacturers are redesigning their products or processes to combat price hikes.

A survey published today by EEF and Royal Bank of Scotland shows that nearly half of the companies surveyed had overhauled their products or processes in response to commodity price increases.

Other strategies implemented by manufacturers to combat the rises in commodity prices include new sourcing strategies and using cheaper, alternative materials. Other ways to deal with the problem include renegotiating contracts, bulk purchasing and ‘buying forward’ at fixed prices.

Perrin & Rowe manufactures luxury taps, and has three factories in the UK. Glenn Griffiths, supply chain manager at the company is updated via e-mail by Nemco, the brass supplier on a daily basis. This enables him to buy forward when the price is low.

“Once the price gets close to our internal price, we tend to fix it for around three months at that price and buy forward – it’s like fixing your mortgage rate,” Griffiths explained.

Pointing to the shortages, Griffiths said that people are buying copper as if it were a precious commodity: “What people are doing increasingly these days is investing in copper, as you would invest in another precious metal like gold.”

David Ost, North West regional director of the EEF, said: “Manufacturers have so far deftly navigated the issue using the internal tools available and being agile in managing customer relations and procurement strategies.”

Peter Russell, head of manufacturing at RBS, said: “”Looking out to the next 12 months, the direction of commodity prices is very uncertain,” he said. “But most manufacturers are building further price increases into their business plans,” he added.

George Archer