For the manufacturing sector, COVID introduced significant volatility and disruptions to the supply chain starting in late 2019. Manufacturing industry studies and outlooks continue to identify supply chain delays, shortages, and costs as being key challenges to manufacturers in 2023. Last week, manufacturers learned Yellow trucking company is headed to bankruptcy and that UPS reached a tentative agreement to avoid a strike with the UPS Teamsters, both of which will undoubtedly continue to push up costs in the supply chain.
Manufacturers we work with continue to share they’ve absorbed price increases from suppliers, some of which are pursuant to inflationary clauses in their supply agreements. The topic of increased pricing due to COVID and other disruptions in the supply chain has largely become an expected response when performing any sort of historical financial analysis. Certain parts of the sector have experienced some reprieve from their peak pricing in recent history, while others continue to experience the cost burden of the new normal.
As we work with manufacturers in this current environment, we’ve identified potential cost savings through one or more of the following strategies:
- Performing a supplier pool examination, including identifying opportunities to increase purchasing scale and reduce cost through strategic sourcing partnerships. Alternatively, some manufacturers have identified backup sources in the event of a disruption at their primary source in order to remain on production schedule.
- Performing cost examinations of price increases from suppliers. Often supply agreements permit the purchaser the right to audit certain cost increases in excess of an agreed-upon percentage or amount.
- Conducting a freight audit, which may identify discrepancies as compared to freight contracts. Similar to the first strategy above, others are identifying strategic sourcing partnerships to reduce costs for LTL and brokerage.
Manufacturers who have moved away from the “this is how we’ve always done it” approach have identified cost savings opportunities within the current state of the supply chain. At GBQ, we’ve worked with clients and trusted industry partners on each of the strategies above and welcome the opportunity to meet with your manufacturing team to identify opportunities for your business.
Article written by:
Mike Purcell, CPA
Senior Manager, Assurance & Business Advisory Services
