American Axle Strike Settlement Drives Tier 1 Labor Cost Inflation
The UAW contract at Three Rivers raises top wages 36 percent, signaling higher component prices for truck assemblers.
Component Price Inflation
Cost Increase
Market trends characterized by a general rise in the price of parts and materials impact the overall budget of a manufacturing project. This component price inflation often stems from higher costs for raw commodities such as copper, gold or plastic resins. When the price of these inputs goes up, the manufacturers of resistors, connectors and semiconductors must pass the cost on to their customers.
Supply Constraint
Shortages of production capacity can drive up the value of available inventory even if the cost of raw materials remains stable. During periods of high demand, component price inflation accelerates because buyers are willing to pay a premium to secure the parts they need for their assembly lines. Lead times often grow longer at the same time, forcing procurement teams to manage both higher costs and delayed deliveries.
Contractual Protection
Procurement strategies include the use of price adjustment clauses to manage the risk of sudden market shifts. These agreements allow the price of a finished product to change based on a public index of component price inflation for its most expensive parts. By sharing the risk between the buyer and the seller, both parties can maintain a more stable business relationship during periods of economic volatility.