The rates of inflation have steadily increased across the globe. The US annual inflation rate reached 7% in 2021, jumping more than an eye-popping 5% from the previous year. As of May 2022, the annual inflation rate in the US accelerated to 8.6%, the highest since December of 1981 and the effects of inflation can be felt by everyone. So, what can North Carolina manufacturers do to stem the tide of inflation?
First of all, what exactly is inflation? Inflation is defined as an increase in prices over time. This is caused by a combination of factors such as higher oil prices, increased government spending and rising interest rates. The rate of inflation varies from country to country and even within countries.
In our current case, the cost of raw materials has increased significantly over the past few years. This has been exaggerated by a crippled supply chain and a tight labor market. As demand increases, companies must increase production to meet this demand. This has led to a competitive labor market that costs the manufacturer more per hour to hire qualified employees and a broken supply chain forces manufacturers to pay more for the raw materials.
Inflation ultimately trickles down to the customer by way of increased gas prices, food prices, appliances and more. In order to remain competitive, manufacturers must find ways to reduce production costs while maintaining quality standards. Three ways to combat these challenges are through cutting costs, investing in automation and increasing the price of products.
Cutting Organizational Costs
To keep up with the competition, companies must be flexible and adaptable. They should also look for ways to cut costs while maintaining quality. But don’t cut costs too much, if a company does not have the right tools or resources, it may find itself at a disadvantage when competing against others. Companies should consider implementing new processes that reduce production costs.
Does your organization maintain an outline of which spending is necessary and which spending is a luxury? A crucial step to saving money is to identify where it’s going. This means looking at every expense you incur, from office supplies to travel expenses. Transportation costs and labor costs are high priorities. Company dinner costs? Not so much. Once you’ve identified all of them, you’ll want to prioritize what needs to stay and what can go.
Automate Your Manufacturing Facility
Automation has become a hot topic in manufacturing as manufacturers look to reduce costs and increase efficiency, especially in tight labor markets. In fact, automation accounts for more than half of all new investments made by U.S. manufacturers. Automated systems allow manufacturers to make products faster and cheaper. They also help manufacturers achieve higher levels of quality and consistency.
Not only does automation help with inflation but automation maintains long-term benefits for a business. Automation allows manufacturers to scale quickly by eliminating human error. When implemented correctly, automated solutions improve processes and cut out manual steps, saving time and resources. This makes everything run more smoothly, including customer service. It also increases efficiency, allowing businesses to focus on what matters most — growing your company.
Increase Price of Products, Strategically
Businesses need to charge more for certain services in order to survive. Organizations absolutely loathe having to increase the price of their products and put the burden of cost on the customer but in a time of high inflation, it is sometimes a necessity.
The best way to deal with this dilemma is to make sure that the price increase is strategic. Do not increase the price more than is absolutely necessary. Make sure that the price increase doesn’t cause the product to become uncompetitive. It is important to note though that if the price increase causes the product to lose its competitive edge then there is no point in raising the price.
If you do decide to raise the price, it should be done gradually so that customers don’t notice. This will allow you to see what effect the price change has on sales before making any further changes.
Contact NC State University Industry Expansion Solutions (IES) today to learn how your organization can become more efficient and cost-effective.