As commodity prices rise, businesses aim to reduce costs and maintain supply chain efficiency

During the recession, businesses clamored to maintain profits and revenue growth as global demand for their goods plummeted. Now, they have a new problem to contend with: as consumer demand slowly grows, how will companies cope with rising commodity costs?

In the past five months, commodity prices have gained 15 percent in value, driving up business costs and creating supply chain inefficiencies as companies are faced with forcing manufacturers to absorb the costs, switch to higher margin materials or cut labor costs. Nonetheless, consumer spending is rising, albeit at a tepid pace. Robert Plaza, an analyst at Key Private Bank, asserts that realistically, "no industry has pricing power" in this market and that by increasing supply chain efficiency, businesses can best handle this leap in prices.

Business tactics vary amongst companies as they endeavor to achieve cost reductions. Polo Ralph Lauren, for example, has successfully squeezed manufacturers into absorbing the mounting costs, while companies that serve a middle-income demographic will utilize cheaper products, like rayon and polyester, instead of cotton, which has lodged hefty gains this year. Steven Madden, the shoe maker, has shifted production from southern to northern China, where costs are lower.

The Federal Reserve continues to print money, further weakening the dollar and driving speculators towards commodities to hedge their investments. Analysts expect this to continue, placing pressure on companies to reduce their business costs and improve their supply chain efficiency to maintain revenue growth.