Coping Strategies — Rising Cost Of Commodities
OVER THE last couple of years, there has been much media attention given to price increases in commodities, particularly oil and other energy- related expenses, even as the economy has continued to strengthen. These increases have had an impact on the cost of doing business for just about everyone, and manufacturers, including those in the graphic communications industry, have certainly not been immune.
As a result, we have seen price increases from the manufacturers of ink, plates and other consumables that many print service providers find difficult to pass along to customers due to the highly competitive nature of the industry.
Since it seems unlikely that prices for consumables and other raw materials utilized in the manufacture of print will decline, or even stabilize in the near term, it is helpful to understand the reasons behind these rising costs, and to consider ways in which the graphic communications service provider can address their impact on margins and the overall health of the business, while still remaining competitive in the marketplace.
Since 2000, the consumer price index (CPI)—or inflation rate—is up about 18 percent, or about 3 percent per year. During that same period, commodities prices were up by 29 percent, or about 5 percent per year. Even the core CPI, which excludes food and energy, is up about 18 percent, indicating that many of these higher commodities prices are not being fully passed along to final buyers.
The cost of materials is being driven up by rapidly growing worldwide economies and the slow rate at which new production capacity is being added to meet growing demand. In particular, there is increased new demand from Asia causing an imbalance in supply and demand. Add some geopolitical tensions to the mix, and you have a situation that is hard for many manufacturers to cope with or predict.