2022 KPMG Inflation Survey: Industrial Manufacturing Report

Why industrial manufacturing is experiencing greater inflation-induced disruption than other industries

Top industrial manufacturing challenges include geopolitical risk, supply chain disruption, and rising labor costs

Inflation is affecting industrial manufacturing (IM) businesses throughout their value chains. Many are finding that their customer pricing has not been able to keep pace with escalating input, labor and transportation/logistics costs. Despite these challenges, IM companies believe they will be able to maintain profitability by accelerating digital transformation and replacing outdated technology to keep pace with an increasingly volatile world.

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Survey highlights

62% cite unforeseen geopolitical risks as a top organizational challenge in MANAGING impacts of inflation
82% expect to raise prices by the rate of inflation (52%) or more (30%)
72% envision passing on price increases in three to six months
74% are looking at right-sizing staff as a means of offsetting the impact of inflation
Nearly 40% plan to allow all employees to work remotely to reduce real estate and related spending
65% anticipate increasing their technology spend by 5% to 20% to mitigate inflationary impacts

Accelerating top-line growth
Despite falling consumer sentiment, 82% of companies expect to raise prices by at least the rate of inflation. At the same time, nearly 60% may look to develop new products at lower price points in an effort to maintain or increase customer wallet share.

Protecting the bottom line
In the face of wage inflation, companies are re-evaluating the right size, structure and location of their workforce. They are considering workforce reductions (48%), cuts in non-salary compensation (47%) and relocating staff to lower-cost regions (53%), while also exploring refinancing (54%).

Planning for exogenous factors
With unforeseen geopolitical risks leading the list of organizational challenges, companies are realizing that “dark swans” are lurking everywhere. They are factoring geopolitics into their risk planning, on-shoring or near-shoring more functions, and building resilience into their supply chain and foreign exchange processes.

Responding with technology
With headcount reductions and right-sizing programs looming, companies expect to counter the potential hit to productivity with technology. Among respondents, 65% expect to increase tech spending by 5% to 20%, with AI, machine learning, blockchain and cloud computing increasingly seen as inflation-fighting investments.

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Key Survey Findings

Responding with technology

Biggest challenges

Top challenges: supply chain disruption, rising labor and material costs

IM companies see these challenges as even greater than unforeseen geopolitical risk, which was the top pick among all survey respondents.

Cost Mix

Nearly 80 percent of IM companies expect to pass along their increased costs by at least as much as the rate of inflation. Understanding the cost mix of each manufacturer will be critical during this period of instability and renegotiation.

Profitability

Even faced with inflation and rising costs, slightly more than 50 percent of the IM companies surveyed expect to maintain the same level of profitability or higher, striving for longer-term cost agreements and shorter-term pricing agreements.

Tech Spending

Although many IM companies need to modernize their technology infrastructure, 71 percent expect either no change in tech spending or an increase of less than 5 percent. Digital transformation will be necessary to retrieve and analyze more data to make faster and better decisions.

Read the full 2022 KPMG Inflation Survey

From bottom line to top line, inflation is top of mind across all industries. The 2022 KPMG Inflation Survey captures a long-term view of how inflation is impacting strategic decisions and corporate behavior.

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