How Reliable Is Your Parts Supplier?
Bankruptcies in the U.S. have risen significantly to nearly 26,000 cases annually. The manufacturing sector, and contract manufacturers specifically, are facing severe financial pressures due to inflation, higher borrowing costs, tighter credit, and more. However, “Margin Compression” may be the largest, and yet often unseen, cause of their problems.
Gross Profit Margin Compression occurs when the cost of your materials, especially raw materials, are increasing faster than you can keep up with them. Even if your sales are increasing, your margins are shrinking, resulting in less profit. For decades, the prices of raw materials like copper and aluminum didn’t fluctuate much. A contract manufacturer’s quote for copper parts might be good for 6 months, or even a year. Today, that quote may not be good for 5 days!
Smart contract manufacturers understand that we are in unusual times, and they make frequent adjustments and corrections to their pricing, but many are not doing this, nor adjusting enough when they do. Without a vigilant eye on this, profit margins are quickly compressed to the point that there isn’t enough profit to pay their bills. That is when credit lines get tapped a little more, debt quickly racks up, and suddenly the bank says no more, and the doors close. When a raw material like copper transitions from being at a steady price for decades to suddenly increasing in price by over 40% in a year, or 3.5% per month, the fall from a strong company with good profits, to a company closing its doors, can be rapid if the company is slow to make changes. And the company’s customers often never even knew there was a problem until their parts are no longer being shipped.
Customers that rely on contract manufacturers for critical parts must be aware of this new phenomenon, expect their pricing to fluctuate and understand why, adjust their own pricing frequently as well, and do everything they can to make sure their suppliers are in a strong financial position. Contract manufacturers need to watch the pricing fluctuations daily, adjust quickly to maintain their profits, and stay hyper-focused on keeping margin compression to a minimum. The leadership at Metal Forming Industries (MFI) understands the assignment. In business since 1991, MFI has seen other periods of rapid pricing fluctuations, and understands what is critical to surviving them. Due to this, MFI is in a strong financial position, continues to invest in the company’s future, and is a reliable and dependable partner for our customers.
Metal Forming Industries (MFI) specializes in Cold Forming and Impact Extrusion for a diverse range of industries and applications. Cold Formed Parts are produced very efficiently, using a lot less raw materials, and requiring minimal additional machining, all of which, Saves You Money! We also manufacture all parts at our plant in the USA, so if you are currently importing your parts, we can save you additional money on high tariffs. And, using less raw materials not only translates into a major cost savings, but it is more environmentally friendly, and reduces waste. We also provide secondary services like CNC Machining, Brazing, Plating, Thread Rolling, etc. to provide the finished parts or components you need.
Contact Us Today to see how we can Reduce Your Manufacturing Costs and be a Reliable Supplier and Partner for your business!
