5 Steps That Manufacturers Can Take to Safeguard Their Margins

Slim margins are a way of life for many manufacturing companies, but the outlook is worrying. The pandemic dealt a hammer blow to profit margins, and the post-COVID recovery isn’t going as anyone had hoped. 
The U.S. manufacturing sector rallied for a short period, and now it’s showing signs of potential decline. It’s a similar picture in the rest of the world. Deloitte’s analysis of S&P Global data reveals that while manufacturing PMI expanded for the first time in almost a year as 2024 began, it returned to contraction by July and hasn’t budged since. The organization warns that a combination of falling orders and rising inventories in late 2024 could force manufacturers to cut production. 
For manufacturing companies, none of this is a surprise. They are facing numerous challenges to their bottom line all at the same time. Shipping container rates are rising again, resulting in higher transportation costs and possible supply chain disruptions. While commodity prices for many items, including metals, wheat and grain, have stabilized, they are still higher than normal. The labor market is strengthening, but wages are still climbing. On top of that, the business climate is uncertain due to wars and unrest in trade hotspots such as the Red Sea, the Black Sea, and South China Seas. 
What can manufacturing companies do to safeguard, and perhaps even fatten up, their slim profit margins?

Improve Your Product Offering

The first temptation might be to cut costs and raise prices. There’s a place for both of these tactics, but you should begin by going back to basics and examining your product offering. You want to deliver maximum value to your target audience, so don’t lose sight of that goal as you cut costs and refine processes. 
It’s important to invest in innovation in product design, so you can deliver the products your customers really want. Double down on social media listening and trend tracking to keep your competitive edge and maintain your appeal. 
Sharpen your demand forecasting abilities with a tool like Netstock, which guides you to the items and the volume that customers want. This helps prevent you from losing money on energy, water, and raw commodities for surplus products, while also ensuring that you don’t miss out on revenue from increased demand that went unnoticed.

Refine Your Pricing 

Pricing is a delicate art, and one that can make a big difference to your profit margins. You want to strike a delicate balance between lowering prices too much, which cuts into your revenue and can create a reputation for “cheap goods,” and raising them too high and causing customers to abandon you for more reasonably-priced alternatives. 
That’s why you need to address your value offering before adjusting your pricing. It’s crucial to have a well-differentiated product that stands out in the marketplace for its value, unique features, and/or innovative concept. 
Once you achieve this, you can consider introducing premium pricing to boost your income and reinforce your positioning as a high-value brand. 

Lock in Prices for Raw Materials 

Rising prices for raw commodities is a serious headache for manufacturers. According to the NAM Q3 2024 report, manufacturers expect raw material prices to rise by another 2.7% over the next 12 months. What’s more, prices are volatile, so it’s difficult to predict when an item will surge. 
Hedgify is a platform that makes it simple to lock in price protections for your vital commodities, so that you aren’t susceptible to sudden price hikes in your most critical supplies. Hedgify uses AI to collect and analyze data from multiple suppliers and markets around the world, in a way that’s similar to the futures market. 
Manufacturers can lock in prices for specific commodities on specific dates. The user-friendly interface enables buyers to secure price protections for critical yet unpredictably priced raw materials, restoring stability to financial margins and making it possible to plan future production with greater confidence. 

Double Down on Operational Efficiency 

It’s important to find ways to improve productivity and cut waste in manufacturing processes. This includes reducing cycle times, increasing overall equipment effectiveness (OEE), and minimizing downtime. 
Predictive analytics play a vital role here, making it possible to detect the earliest signs of equipment failures and fix items quickly, before correction requires extended downtime and/or replacement. 
Automation and robotics are must-haves for operational productivity. Robotic process automation (RPA) can increase efficiency, cut turnover time between batches and product runs, and reduce errors that add to production costs and timing, while robot-powered “lights out” manufacturing extends working hours. Automation frees employees from tedious repetitive work and redirects them to tasks that add value and drive revenue.

Optimize Your Supply Chain

Average lead times for production materials have improved since 2022, but they’re still higher than they were pre-pandemic. 
The NAM survey shows that transportation and logistics costs are a primary business challenge for over 35% of manufacturers, so supply chain optimization is crucial. Unsurprisingly, 78% of manufacturers say they have implemented or are planning to invest in supply chain planning software.
A supply chain planning tool like OMP’s Unison Planning can help you look for suppliers that are at risk of disruption, and check for concentration risk. Once you’ve identified weaknesses, you can decide if you want to replace them with a different supplier or logistics provider, or to research backups just in case. 

Profit Margins Don’t Have to Dwindle

These are uncertain times for manufacturing companies, and everyone is nervous about their profit margins. While the challenges are immense and there’s no magic wand, there are concrete steps that manufacturers can take to improve the situation. With careful planning and the right tools, you can protect and even plump up your margins.