Inflation rose to a 40-year high in 2022, with a consumer inflation rate of 9.1 percent. Although rates declined in 2023, now that 2024 is here, the manufacturing industry can still feel the impact of this inflation. Defined as the general rise in prices of goods and services over time, inflation is considered normal at around 2 percent. Inflation is forecasted to remain higher than normal throughout 2024, meaning higher costs of production and reduced profits, ultimately hindering the manufacturing industry’s ability to grow. Ensuring your company has all the proper job shop software integrations may be your saving grace.
Impacts of inflation
The manufacturing industry is heavily reliant on raw materials, which are subject to the fluctuations of the global market and are in short supply due to labor and transportation shortages.
As the prices of these materials increase, the cost of manufacturing goods also rises, and businesses must adjust their pricing accordingly. Additionally, higher inflation also leads to increased interest rates, which can further add to the cost of production and reduce the flexibility of growth for small-to-medium businesses (SMBs).
Inflation has a major impact on the labor market. As the cost of living rises due to higher inflation, businesses must raise wages to attract and retain skilled workers. This increase in overhead costs leads to a further reduction in profits
The inflation rate in 2024, though declining, is still likely to impact the manufacturing industry. Businesses must be prepared to adjust their prices and production costs to remain competitive in the global market. Additionally, they must strive to keep their labor costs under control while still providing competitive wages to attract and retain quality employees.
By taking the necessary steps to mitigate the effects of higher inflation, businesses can ensure their long-term success in the manufacturing industry.
Strategies for Mitigation
While there is no way to completely shield your business from inflation, there are ways to mitigate the negative impacts inflation will leave on your company’s profits.
Moving to automation will help your company allocate resources more effectively across your shop floor. Using machine intelligence to understand which machines are performing at capacity will keep your business running productively while utilizing what you already have rather than looking externally for an extra boost.
Keeping productivity high while maintaining a low headcount will offset the rise in labor costs. Keeping an eye on which tasks employees excel in by using business intelligence and updating your machine shop scheduling software accordingly is a quick solution to implement within your business process that will improve performance.
Freezing recruiting is a temporary solution for companies who feel all their imperative roles can be fulfilled with their current employees. This hiring hold gives employers time to reorganize teams, train current staff, and integrate members to achieve higher productivity. This also allows employers to fill less urgent jobs with part-time, contracted, or hourly employees.
While freezing recruiting is a last resort, having manufacturing management software can be your 365, 24/7 employee when labor is stretched thin. By becoming the one source of truth and data, this solution can eliminate redundant tasks, bring operations closer together, and easily manage difficult areas of manufacturing like scheduling, estimating and quoting, and even automate purchasing for your teams. Solutions like this can help take the workload off burnt out employees and help them perform higher overall to drive production.
Unfortunately, throughout 2024, we will need to continue fighting against inflation within all fields and industries. Manufacturers are not alone in this struggle, and we will continue to see new and innovative ways to offset the effects of inflation moving forward.
Editor’s Note: This post was originally published on March 2, 2023, and has been revamped and updated for accuracy and comprehensiveness.
