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

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