Sustainable pricing is a must for door manufacturers in stormy times

The construction business is booming once again. In some ways, given the bounce back after Covid, one might think door manufacturers have little to worry about, with many factories booked through to mid-2022.  However, other factors such as increased scrutiny post-Grenfell, supply chain issues and raw material cost increases, mean savvy door manufacturers who wish to continue to innovate, whilst maintaining quality and safety, will have to review their prices if they want to protect the future of their business.

Safety costs

Fire safety has naturally come under a great deal of scrutiny since Grenfell.  Formal assurances of fire safety are more important than ever. Testing, retesting and renewing certification every five years is a necessary but costly part of the door manufacturing business, and it may even become more frequent, in keeping with the existing annually reviewed PAS 24 security test. And coupled with this increased responsibility for achieving safety standards comes an increase in insurance costs. The burden of this necessary higher standard of fire safety falls heavily on manufacturers, and the financial cost of achieving it significantly alters their cost base. 

Soaring raw materials costs

Other factors currently affecting the door manufacturing industry should also be considered.  The bounce back of the building industry after Covid has meant a huge demand for materials. The basic economics of demand versus supply has forced an increase in all raw material prices.  For instance, steel has doubled in price in the last 12 months.  Raw materials and components are also in short supply, which sometimes means shopping around, switching suppliers and shipping from elsewhere, incurring further costs.

Retaining workforce

Less obvious, is the competition for good bench workers.  The advent of huge employers, such as Amazon, locating themselves in multi million square foot hubs and offering flexible hours and other benefits, means more pressure to increase wages to retain trained staff.  One door manufacturer in Mansfield lost a large percentage of bench workers overnight this year when Amazon moved into the vicinity.

Combined, these factors create a perfect storm of financial pressure for door manufacturers, and it will become very difficult for them to keep unit prices down. In fact, to attempt to do so would be unwise. Post-Grenfell, the industry as a whole is keen to prioritise safety, quality and innovation to ensure that a tragedy of this sort never happens again. If the industry is to guarantee fire safety and security for future buildings, door manufacturers must be allowed to implement sustainable and realistic pricing to ensure that they are around to help provide that guarantee!

In this context, it’s important that manufacturers have a clear method to reflect these significantly increased costs in their sales pricing approach. Given that many of the expenses are up-front and not a direct production cost, Rutland suggests that the principles of amortisation should be used to calculate the costs and clarify what sales-price increase is necessary to cover them.

The Rutland ‘amortisation’ method

  • Identify all intangible or up-front costs that are critical to maintaining a product offering – testing and certification, product insurance, recruitment costs, etc. – that have been incurred or will be incurred within the lifespan of the proposed sales pricing.
  • For every cost, identify its duration – insurance may last 12 months, certification will last a varying number of years.
  • Divide each cost by the number of years it lasts for to arrive at an annual cost, and then add up all costs to arrive at a total annual cost.
  • Divide the total annual cost by the minimum amount of product units that are expected to sell in a year, and this equates to an additional cost of sale that should be factored into the next price increase.

This method can be applied to arrive at a company-wide price increase or one for a specific product. Whichever it is, the simple principle of factoring in the larger occasional costs that are essential to a product offering helps to ensure that businesses operate on a sustainable footing while maintaining a high standard of safety that benefits us all.

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