Managing inflation in production
DJ Maughfling, CEO at Supersprox, read the piece we published last month (by Elisabetta Quadrini at Newfren, Turin) with interest - as did many other vendors. Her piece was about the supply chain difficulties being experienced as manufacturers run to keep up with product demand.
DJ told IDN: "Many production companies in the motorcycle industry are experiencing a massive surge in orders. On the face of this, it seems like an excellent opportunity to maximise productivity and reduce operational costs, resulting in healthy profits.
"Often the reality of the situation over the past five months has not been meeting expectations though because of exceptional growth in raw material prices. To take an example that we here at Supersprox have seen in steel prices - the price of steel has risen from € 580 per ton in January 2021 to € 1,075 in May, with further increases predicted.
"Even when the price of iron ore is decreasing and the London Metal Exchange (LME) shows a decreasing price graph, the reality is that the market is under capacity and steel producers are able to take advantage of the profits in the short term."
DJ says that it is currently very difficult to increase prices, with many producers waiting to see how their competitors are going to react first, while, all the time, production costs creep up. Supersprox has decided to take a different approach in relation to the price increase pressure. By focusing on bringing further process inhouse, it can reduce costs and compensate, to some degree, the growing price trend. This allows the company to grow volume capacity by creating a leaner structure.
 |
| Steel prices on the LME 2021 |
"To meet the need for cost reduction, we have purchased an additional building in Ukraine, close to our sprocket factory, and we are in the process of modernising it and setting up a zinc processing line, the goal being to be able to finish our sprockets completely ourselves.
"We will be able to reduce production costs by moving the labour involvement from Poland to Ukraine, where labour costs are still at least 40% lower. In addition, it will be possible to process parts on a daily basis - instead of the current 14 day batch and queue process - and we will then be able to make all the finishing process in Ukraine instead of Poland. Time is money - combining these two steps will save six weeks from our annual production cycle."
Supersprox plans to have the plant installed by the end of 2021 and start testing as soon as the system is online.
DJ went on to tell us that in his view, lowering the cost of production is critical for companies at this time of high inflation. "With the changes in China production and the high demand from local Chinese OEM motorcycle producers, the European production is looking more and more realistic."
Supersprox already claims to have a production cost for small runs that is the same as the going rate in China, and DJ is of the view that "with the current difficulties in buying from China, there is a window of opportunity to bring back some part of the medium volumes and more complex production to Europe."
www.supersprox.com
