Rising fuel costs change business strategies

Oct. 30, 2008

MFG.com’s (www.mfg.com) latest MFGWatch survey covering energy-centric trends indicates that 30 percent of businesses surveyed would respond to rising fuel costs by raising prices to their customers, 29 percent would look for savings and productivity gains in other areas, 21 percent responded there would be no changes, and 14 percent said they would absorb the cost and accept lower profitability.

When asked what changes were planned to lower or offset fuel costs for their businesses, survey respondents replied:
- 28 percent of the participants are buying materials from suppliers closer to their facilities.
- 25 percent are reviewing all transportation and logistics providers contract arrangements.
- 22 percent are planning no changes.
- 18 percent are changing their approach to production, e.g moving from make-to-stock to make-to-order.
- 7 percent are changing their warehousing, distribution and service center locations and/or strategies regarding supply chain network design.

In addition to transportation costs rising as a result of fuel price increases, respondents were asked to identify associated factors impacting their businesses:
- 42 percent of the participants had increased raw materials costs, e.g. oil derivatives such as plastics and chemicals.
- 22 percent of buyers encountered increased costs for manufacturing processes requiring heating and cooling.
- 12 percent of the respondents experienced reduced demand for their, or their customers, products or services.
- 9 percent of buyers had greater difficulty attracting and retaining staff.
- 3 percent responded that they were losing sales to more energy efficient competitors.

When asked if their company was actively pursuing Green (environmentally friendly) manufacturing practices, 51 percent of the participants responded affirmatively, 36 percent stated no changes were being made, and 12 percent did not know if their companies were pursuing Green initiatives. The YES respondants were asked to describe the Green initiatives they were currently practicing:
- 25 percent are recycling manufacturing waste.
- 22 percent are reducing waste through more efficient manufacturing practices.
- 17 percent have minimized power consumption through more efficient machine utilization.
- 16 percent use recycled materials as a part of their raw materials.
- 16 percent use green materials (wood from managed forests, toxic-chemical free materials, bio-degradable materials, etc.).

Buyers employing Green manufacturing practices were also asked how it affected their bottomline:
- 29 percent stated Green practices saves them money.
- 27 percent stated Green practices attracts more business.
- 20 percent did not know if there was an effect on their bottom line.
- 13 percent stated Green practices have no effect.
- 12 percent responded that Green manufacturing practices cost them more money.

The survey also inquired if respondents were developing new products to reduce their own fuel-related costs, such as reducing the size and weight of components and intermediate packaging. 66 percent of the participants responded No, while 28 percent stated they were developing new products. 6 percent did not know if their companies were taking steps to develop new products.

More than 450 respondents from the MFG.com North American Buyer community completed the Survey, with 88.2 percent of the participants from the United States and 11.8 percent from Canada. Participants included engineers, purchasing professionals, and operations managers who actively use MFG.com to source for manufacturing services, custom and standard parts.