Survey: High Energy Costs Impact Margins

Managers at production and manufacturing companies responded on the impact of high, volatile energy costs in Industry Direction's second annual study, The Energy Cost Factor: Transforming the Supply Chain to Offset Margin Squeeze. Responses from 139 respondents from a wide range of industrial companies were recorded.

"This year's findings are significant because they demonstrate that companies are not simply bearing the brunt of high energy costs in the most obvious areas of the supply chain,'" said William Brandel, Principal at Industry Directions. "Further, they now recognize that they cannot pass these higher costs on to customers or demand lower costs from suppliers."

Although energy costs have leveled off or even subsided in some areas over the last year, 79 percent of top manufacturing executives are focused on supply chain issues to energy costs, compared to 77 percent in 2005. Every aspect of the supply chain - led by logistics and transportation; procurement, production, inventory management, and planning - is seriously impacted by the higher energy costs. Warehouse management, reverse logistics, procurement and planning are impacted at a larger number of companies than in the previous year.

More than four times as many respondents as in 2005 -22 percent vs. 5 percent - recognize that the cost of energy may hurt their margins, and only 15 percent believe that they can pass their higher costs on to customers, compared to 31 percent in 2005. Also, fewer companies expect lower costs from suppliers to offset energy costs in the future.

Although the Industry Directions research suggests that the companies will get some measure of benefit by focusing on certain areas of the supply chain, the overwhelming conclusion shows that high energy costs give little choice for companies other than to optimize their supply chain network to design and improve planning and execution in a more holistic manner and to ultimately transform the dynamics and structure of their supply chains to support global operations.

The study was sponsored by Logility and Manhattan Associates. Free copies of the report are available at http://www.industrydirections.com

You may like these other stories...

IRS audits less than 1 percent of big partnershipsAccording to an April 17 report from the Government Accountability Office (GAO), the IRS audits fewer than 1 percent of large business partnerships, Stephen Ohlemacher of the...
Is it time to consider a value added tax?Forbes contributor Joseph Thorndike wrote yesterday that he believes the tax reform proposal by House Ways and Means Committee Chairman Dave Camp (R-MI) was dead on arrival. But he...
Read more from Larry Perry here and in the Today's World of Audits archive.The planning phase of an audit engagement of an entity using US GAAP or a special purpose framework will, with minor differences, include similar...

Upcoming CPE Webinars

Apr 22
Is everyone at your organization meeting your client service expectations? Let client service expert, Kristen Rampe, CPA help you establish a reputation of top-tier service in every facet of your firm during this one hour webinar.
Apr 24
In this session Excel expert David Ringstrom, CPA introduces you to a powerful but underutilized macro feature in Excel.
Apr 25
This material focuses on the principles of accounting for non-profit organizations' revenues. It will include discussions of revenue recognition for cash and non-cash contributions as well as other revenues commonly received by non-profit organizations.
Apr 30
During the second session of a four-part series on Individual Leadership, the focus will be on time management- a critical success factor for effective leadership. Each person has 24 hours of time to spend each day; the key is making wise investments and knowing what investments yield the greatest return.