5 Catalysts for Higher Manufacturing Costs in 2023
Manufacturing success is often a product of efficiency. The ability to produce high-quality products quickly and cost-effectively is the mark of every manufacturing leader. It means paying close attention to the many variables factoring into a successful value stream and controlling them with precision to ensure optimal results. Yet uncontrollable variables — like prices — frequently have the biggest effect on production efficiency.
In 2023, cost considerations are reaching a fever pitch for manufacturers. As they seek to maintain efficient operations, they’re battling rising prices on numerous fronts. Here’s why.
1. Energy costs
The price of oil and natural gas has been climbing in recent years due to various factors, including the war in Ukraine and other global supply chain disruptions. This has increased the cost of manufacturing products that require energy to produce them, such as plastics and metals. While renewables are emerging as a force, they’re still a long way from being able to support the consistent energy consumption requirements of major manufacturers.
2. Raw material costs
According to the Institute for Supply Management, raw material prices have been fluctuating all year long. But some critical materials such as copper, steel, and lumber have remained higher than average, even during down months. Sky-high material prices are the result of many factors, including increased demand and supply chain disruptions. A supply-and-demand imbalance continues to inflate these prices.
3. Labor costs
It’s no secret the domestic labor market is volatile in 2023. Wages for manufacturing workers have been rising in recent years. Employers must compete for scarce labor, and wages are still not high enough to attract long-term laborers. Expensive human capital has increased the cost of manufacturing — especially for products requiring labor to produce, such as furniture and appliances. While automation is helping, it’s unable to offset the disparity.
4. Supply chain disruptions
While the disruptions from COVID-19 have largely subsided, supply chains are under new duress as major manufacturers push to reshore and near-shore operations. This pivot has made it more difficult and expensive for producers to get the materials and components they need in the short term, leading to shortages of some products and higher prices for others. Thankfully, economists expect these disruptions to subside in 2024-25.
The United States endured a period of historic inflation in early 2023. Although it has quietly subsided, the effects are still being felt. Internationally, inflation is rising, which is escalating the cost of manufacturing globally. As long as inflationary environments exist, the import-export landscape will continue to feel the sting of higher prices, which inevitably trickle down to manufacturers.
High costs are the new norm
The higher cost of manufacturing in 2023 is a sign the industry has shifted to a new norm. As external variables continue to drive price considerations, manufacturers must invest in technology and innovations to help contain production costs. It’s in these times the pursuit of efficiency must be central to your manufacturing approach.