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With over 90 years of experience in the manufacturing sector, Wipfli brings deep industry insight and a tailored approach to every engagement.
We don’t deliver off-the-shelf solutions. We work closely with your teams to understand your unique challenges and deliver targeted, results-driven strategies that help move your business forward.
Our manufacturing performance services include:
Drive growth with an agile, future-ready strategy. Wipfli helps you benchmark performance and create actionable plans that improve profitability and position your business for long-term success.
Through leadership programs, coaching, team development and data-driven assessments, Wipfli empowers manufacturers to strengthen leadership at every level. Our manufacturing leadership development services equip your leaders to align staff under your business goals and foster a culture of trust and performance.
Improve efficiency, cost visibility and productivity across your operations. Wipfli helps manufacturers streamline processes, leverage technology and use operational data to drive measurable results.
Turn machine data into the real-time insights you need to make smarter decisions about improving productivity and profitability. With support for implementation, training and ongoing performance analysis, Wipfli can help you leverage data for building a more successful business.
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ARTICLE
How to improve manufacturing profitability and margins
Manufacturers are getting squeezed from multiple angles right now. Input costs are on the rise, supply chains are unpredictable and labor keeps getting more expensive. But in this environment, margin and profit improvements are achievable. They require discipline, an honest assessment of your operations and a willingness to act on what your data is telling you. Keep reading for strategies to improve your business’s profitability. What’s squeezing manufacturer margins right now? It’s no secret that margins are currently tight in manufacturing. The top two causes of that are supply chain challenges and rising labor costs. Supply chain instability Supply chain disruptions drive up costs and make planning more challenging. Manufacturers are dealing with significant supply chain volatility right now, due to the following factors: Tariffs continue to be unpredictable. The Canadian tariffs are the latest example. Resin availability is unpredictable and prices are going up. Steel and aluminum availability and pricing continue to be a challenge. Geopolitical uncertainty in places like the Middle East, Russia, China and Taiwan continues to create trade relationships volatility, making it nearly impossible for manufacturers to lock in stable demand and supply plans. Labor costs Starting wages in manufacturing have climbed to $17-$20 per hour in many markets. That’s compressing margins across the board. Even high-performing manufacturers are seeing margin compression right now as labor, benefits, utilities, supplies and indirect costs all trend upward simultaneously. The challenge isn’t just cost. It’s that many organizations haven’t raised prices fast enough to keep up. At Wipfli, we’re seeing a significant number of manufacturers’ balance sheets showing signs of financial distress, including covenant violations, forbearance situations or unsustainable debt-to-earnings ratios. If you don’t have a strong balance sheet when things get hard, survival becomes less likely. How to improve manufacturing profitability Consistently turning a profit is tough for manufacturers in today’s landscape. Here are some items to focus on that could improve overall profitability: Rethink your pricing strategy Most manufacturers do a reasonable job of incorporating the costs of raw materials into their pricing. Where they fall short is in recouping all the other inflationary costs, including direct labor, indirect labor, benefits, utilities and supplies. These line items are all going up, and the value-added portion of a manufacturer’s cost structure is taking the most compression. You must separate the raw material price conversation from the broader inflationary cost increase conversation. And it’s a conversation you must have with customers, even if it means breaking a contract or pushing back on a “no.” Pricing strategy also means evaluating your existing capacity. If you have open press time or machine availability, you can price more aggressively to fill that capacity and cover overhead. If you don’t have capacity and would need capital investment to take on new work, that changes the math entirely. Pricing a project that requires a large investment, the same as one that uses equipment you already have, can create real cash flow challenges. Maximize your technology ROI Automation investments are spendy. Manufacturers with tight balance sheets can’t afford to spend millions automating medium- or low-volume parts just because the technology exists. The right question isn’t “should we automate?” It’s “what level of automation do we actually need to run this profitably?” That spectrum runs from solid process flow and hand automation on the low end to fully autonomous cells on the high end. And many organizations that think they’ve fully automated are still putting an operator at the end of the line waiting for parts. That’s not automation. It’s a gap in execution. When evaluating a capital investment in automation, consider: Value-add vs. volume: Higher-volume parts justify more automation. Low-value-add parts may actually need automation most, because the economics don’t justify manual labor. Flexibility: Can this asset be redeployed if the project doesn’t meet volume expectations? Prioritize equipment that can be used across multiple projects over single-purpose pieces of equipment. Phased approach: Start with entry-level automation that has a lower payback threshold. Evolve the automation plan as volumes increase and the product matures. Think of capital investment like a ladder; you don’t have to start at the top rung. A phased approach that builds in flexibility de-risks the investment and keeps you from overextending on a project that hasn’t proven its value. Manage labor more efficiently As wages rise, it becomes more important to maximize throughput and value added per hour of labor. Here are a couple of practical strategies: Reduce reliance on temporary labor. Temp markups can run as high as 60-65%, while the cost of hiring someone full-time with benefits is closer to 20-30%. In this labor market, you’re not saving money on temps anymore. You’re paying a premium for flexibility you may not need. Temporary workers have their place, but should not be viewed as the easy button. Eliminate low-value work. Manufacturers frequently throw labor at small problems because they don’t want to spend the time or money to solve the root cause. This practice compounds labor challenges. You end up with a disproportionate number of people doing inspections, moving product unnecessarily or absorbing transactional waste that proper process design would eliminate. Control material costs Buying on contract or locking in a price through futures markets is a good option when available, but most manufacturers can’t rely on it. Distributors pass through market pricing, and a six-month PO doesn’t guarantee a six-month price. So the strategy shifts to speed and transparency. Identify when prices change quickly and be ready to pass those costs on. To show your customers you’re operating in good faith, pass along price drops the same as you do for increases. For manufacturers, those hard pricing conversations get easier when you have built trust with customers. Two other tactics that matter: Multiple suppliers and approved materials: If you’re single-sourced on a critical material, your leverage disappears. Qualifying a second vendor or second approved material takes upfront work but offers supply continuity and potential leg up in price negotiations. Lessons from COVID still aren’t being applied consistently. Don’t wait for the next disruption to learn this again. Pay suppliers on time (or early): Manufacturers with stretched balance sheets stretch their suppliers. That’s one of the fastest ways to lose material availability. Organizations that pay on time, or even early, for potential discounts, can expect more consistent supply and maybe preferential terms/price. Know your market Cost-plus pricing is a starting point, not a strategy. The best manufacturers actively build market intelligence into how they quote and how they assess their business. Track your own hit rates. Review your margin reports by customer and market. When you miss a quote, do some digging to understand where your pricing was off and whether it was material, labor or both. That feedback shapes how you quote the next job and how you structure your business to be more competitive overall. Build real cost visibility Cost visibility plays a key role in margin improvement. But many manufacturers struggle to understand all the costs that need to be factored into pricing. Start with your bill of materials: Audit your highest-volume and lowest-margin parts regularly. Are you running them the way you said you would when you priced them? If your actual cost differs from the standard cost by more than 5%, you need to understand exactly what’s driving the gap. It’s often a performance erosion problem, not a pricing problem, that is entirely within your control to fix. Price by part, not by blended rate: When it’s time to pass on a price increase, don’t tell a customer you’re raising everything by a certain percentage. Show them by part where costs are increasing and where they’re coming down. Not every part carries the same labor or material cost. The manufacturers who can walk into that conversation with part-level data look sophisticated. The ones who can’t look like they’re guessing. Be honest about your low-volume, high-mix parts: They can look like big profit drivers on paper. In reality, they create supply chain complexity, scheduling headaches and labor inefficiency. Do a tail analysis on your lowest-volume parts and customers. For the ones that don’t make sense, either reprice them, restructure how you run them or have a direct conversation with the customer about the arrangement. Know your money makers Finally, be honest with yourself about where you’re actually making money. If someone asks you what your 10 most profitable parts are, you should be able to answer without hesitation. Find ways to produce as many of those products as possible. Read more Cybersecurity in manufacturing: Risks and best practices The impact of Canada retaliatory tariffs on U.S. manufacturing Tax treatment for tariffs: How U.S. manufacturing companies should treat tariff costs and IEEPA refund uncertainty under U.S. tax rules
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9 top tariff mitigation strategies for manufacturing CFOs
For many manufacturers, the Trump administration’s tariff policies have created new costs and supply chain complications. Active tariffs under Section 232, Section 301 and Section 338 are raising the cost of many imports by 10-50% . How should your business adapt to succeed in this environment? Keep reading to learn key tariff mitigation strategies that CFOs and COOs can use to protect profitability even in the face of tariff pressures. 9 top tariff mitigation strategies manufacturers should know While there is no silver bullet, manufacturing CFOs and COOs do have options to offset tariff costs. If you understand your tariff exposure and supply chain, you can consider mitigation strategies like alternative sourcing, pricing pass-throughs, optimized inventory management, operational efficiency improvements and tax incentives. Deploying a combination of these strategies will help protect your overall profitability even after accounting for tariff expenses: 1. Map your supply chain Start by mapping out your current supply chain. Identify the sources of your raw materials, components and finished goods, while also reviewing HTS codes for all imports. Understanding where your products originate will help you evaluate potential tariff impacts. 2. Diversify your supplier base Based on your supply chain mapping, consider if you could reduce tariff exposure by diversifying your materials suppliers. Nearly all U.S. trading partners remain covered by tariffs, but not all countries are subject to the same tariff rate. Section 301 tariffs, for example, range from 10% to 12.5% depending on the country. In this example, switching from a supplier tariffed at 12.5% to one tariffed at 10% would reduce your tariff payments by 20%. 3. Evaluate domestic or near-shore sourcing In certain cases, tariff costs may mean that domestic sourcing is now a more viable option. Materials or goods sourced domestically aren’t tariffed, so you may be able to find more competitive pricing than in years past. Companies that have moved production overseas may also want to explore whether reshoring could make sense, although this approach typically only works when combined with heavy automation to offset high domestic labor costs. 4. Reassess your costing and quoting strategies For much of 2025, manufacturers simply ate tariff costs rather than risk angering consumers by passing those costs along. But that’s not a viable long-term solution. If you haven’t yet, explore changing your prices to reflect your higher costs, as well as how to implement those increases over time to soften the impact on consumers. 5. Optimize inventory and purchasing strategies Adopting a more agile, flexible approach to inventory management can help you avoid unnecessary costs. Taking this approach involves understanding exactly what your customers want, focusing on jobs that boost profitability (typically those that are either high volume or high value) and exploring more flexible contracts with suppliers to avoid over-purchasing materials you don’t need. 6. Review your supplier and customer agreements Tariffs are affecting both your suppliers and businesses that buy your products. You may be stuck with your existing contracts, but when negotiating a new one, explore how you can share the burden of tariff costs rather than leaving your business to eat most of them on its own. 7. Improve operational efficiency Improving operational efficiency can lower operating costs or increase production to offset tariff expenses. Manufacturers are increasingly leaning on technology like AI to deliver operational gains, with packaging automation, machine monitoring systems and process control technologies all delivering notable ROI in this area. This does involve making a meaningful upfront investment. However, certain tax incentives can notably lower that burden. 8. Use tax incentives to offset tariff costs A smart tax strategy can help significantly offset your overall tariff burden. CFOs should dig into the details on how to handle accounting for tariffs from a tax perspective , as well as consider how specific manufacturing tax incentives could reduce your non-tariff tax exposure or help cover the cost of investments in efficiency, molds, dies and automation. Key tax incentives to explore include: Bonus depreciation and qualified production property to immediately deduct the full cost of certain qualified real property investments. Section 179D expensing to deduct the cost of certain energy efficiency facility upgrades. R&D tax benefits to deduct or receive tax credits for research, experimentation and development costs. Tariffs can also increase your credit eligibility here. 9. Pursue tariff refunds when applicable In early 2026, the Supreme Court overturned the administration’s IEEPA tariffs and ordered that roughly $166 billion in tariff collections be refunded. If your business paid IEEPA tariffs, you may be eligible to have that money returned . The process can be complex, but if you were burdened by significant IEEPA tariff costs, you stand to gain a significant reimbursement. Why tariff management matters for manufacturers today Manufacturers face a host of pressures on profitability, including high costs for raw materials and labor, competition from emerging markets, economic uncertainty and a technological revolution that is shaking up traditional business models. Tariffs only add to that pressure, which makes managing them essential to surviving (and thriving) in today’s business environment. This is doubly the case because tariff policy continues to be volatile, which means you’ll get burned if you don’t have a process in place to help you adapt to those policy shifts. Also consider that successful tariff management means learning to run your business more efficiently and effectively. By acting now, you’re investing in long-term performance gains that will stick around even if the current tariffs are eventually phased out. In other words, implementing an effective tariff management strategy will bolster your profit margins both now and in the future. How tariff mitigation helps CFOs improve profit margins No single tariff mitigation strategy will likely offset all your tariff costs. However, by employing a combination of supply chain adjustments, efficiencies, tax incentives and pricing pass-throughs, you can significantly reduce the hit to your profit margins. Consider that tariff mitigation strategies help you to: Counterbalance tariff costs by finding new cost savings or opportunities to do more profitable jobs. Operate more efficiently, with tariffs serving as the necessary push to adopt automation or more efficient processes. Better understand your supply chain and customers so you can adapt to meet today’s business demands. Avoid wasting valuable tax opportunities by claiming deductions or credits you may already be entitled to, or that apply to necessary expenses. Protect your margins by helping negate rising costs in areas like healthcare, labor and materials to set you up for a strong balance sheet five years from now. Tariffs are frustrating. But they are also an opportunity to rethink your business and make structural changes to put it on more solid, sustainable ground. Read more Tariff update: New Section 301 tariffs, Section 232 and more Tariff refunds for manufacturers: What to do next How do tariffs affect taxes for manufacturing businesses?
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Tax treatment for tariffs: How U.S. manufacturing companies should treat tariff costs and IEEPA refund uncertainty under U.S. tax rules
Tariffs are now a seemingly permanent cost consideration for U.S. manufacturing companies sourcing capital equipment and raw materials globally. This means business leaders need to better understand the rules, especially as certain tariff refunds have created additional complications. Misclassification when accounting for tariffs can affect taxable income, timing of deductions and missed opportunities. Keep reading to learn more about how tariffs affect your business from a tax perspective. Tariff costs depend on the nature of the goods From a federal income tax perspective, the proper treatment for tariff costs largely depends upon the nature of the goods on which the tariffs are being charged. That is, in most cases, the treatment of the tariff will follow the tax treatment of the underlying asset or good that is being imported into the United States. Tariffs on capital equipment, raw materials and R&D supplies all have different tax treatments. How tariffs affect capital equipment When a tariff is incurred related to the import of machinery and equipment, the tariff is generally treated as part of the asset’s acquisition costs. The tariff is capitalized into the tax basis of the asset, along with purchase price, freight and installation costs. Once capitalized, the tariff cost would be recovered through the same depreciation methodology as the underlying asset. Most machinery and equipment is depreciated via MACRS over five or seven years. In addition, taxpayers can accelerate the depreciation and cost recovery with tools like 100% bonus depreciation and Section 179 expensing, subject to current law limitations and phase-down schedules. How tariffs affect raw materials and inventory Tariffs assessed on imported raw materials are generally treated as inventoriable costs. That is, the tariff is capitalized into the cost of inventory, along with the purchase price of the raw materials and related inbound freight. The tariff is part of the cost of goods sold and is deducted when the underlying inventory is sold. Some manufacturers expecting tariffs to be levied on their raw materials for the foreseeable future may want to consider the last-in-first-out (LIFO) method of accounting for their inventories: LIFO accounting can be advantageous when costs are rising. But other requirements exist with LIFO, such as book-tax conformity and a requirement to stay on LIFO for at least five tax years. Companies considering LIFO should examine their internal cost accounting systems, for both book and tax purposes, to make sure that the system appropriately captures tariffs. If not, a change in accounting method should be considered prior to adopting LIFO. How tariffs affect R&D supplies Like capital equipment and raw materials, the cost of tariffs on R&D supplies follows the treatment of the cost of the underlying asset or good. As such, if the underlying supplies are materials used in the conduct of research, the tariffs would follow the same treatment. The Tax Cuts and Jobs Act of 2017 (TCJA) differentiated the treatment of domestic and foreign research expenditures for tax years beginning after December 31, 2017. Effective for tax years 2018 and thereafter, the TCJA required research costs to be capitalized and recovered over the applicable period. The recovery period for domestic research expenses was set at five years, with foreign research expenses to be amortized over 15 years. The One Big Beautiful Bill Act (OBBB) gave manufacturers relief for the tax treatment of their domestic research expenditures : For tax years beginning after December 31, 2024, domestic research expenditures are once again deductible as they are paid or incurred. Moreover, a transition rule exists whereby taxpayers can ‘catch up’ their unamortized research expenditures from tax years 2022 through 2024; and small taxpayers are allowed to amend prior years’ returns to deduct the research expenditures otherwise capitalized on the originally filed tax return. For manufacturers using imported supplies in the conduct of research, such as prototype materials, molds or dies and automation supplies, the tariffs will follow the treatment of research supplies or materials. For tax years 2025 and beyond, most manufacturers will choose to deduct their research expenditures, and thereby the related tariff levied on those supplies and materials, as they are paid or incurred. Tariffs may offer a hidden tax benefit for R&D activities Given that the tariff amount follows the treatment of the underlying property, a manufacturer’s inquiry might turn to whether those costs can also qualify for the R&D tax credit . If a manufacturer imports chemicals, prototype materials, or other non-depreciable property that qualify as supplies under Section 41, the tariff embedded in their acquisition cost should generally be included in the amount paid or incurred for those supplies. The tax code focuses on the “amount paid or incurred” for supplies used in the conduct of research. Because the tariff is part of the acquisition cost of the imported supply, the tariff should generally be included in that “amount paid or incurred,” assuming the underlying item is a qualifying research credit supply and is used in the conduct of qualified research. For expensive prototype materials or molds/dies used in the conduct of domestic research, the tariffs levied on those supplies can significantly increase the amount of qualified research expenditures and thereby the tax credit. This rewards companies more when they are increasing their R&D costs. Supreme Court ruling creates ambiguity on accounting for tariff refunds On February 20, 2026, the U.S. Supreme Court ruled in a 6-3 decision that the International Emergency Economic Powers Act (IEEPA) does not give authority to the President to impose tariffs . The majority opinion did not address tariff refunds and the dissenting opinion noted the process is likely to be a “mess.” Significant uncertainty exists, independent of the proper tax treatment of any potential refunds. Only the importer of record is eligible for the refund, but many suppliers passed those costs onto their customers. As a result, many manufacturers will need to look into whether the ruling affects their rights and obligations under contracts with vendors and customers. That is, even if a manufacturer isn’t the importer of record, they may still seek or be legally obligated to a refund from their vendor. It is also important to note that the Supreme Court ruling was limited to tariffs assessed under IEEPA, not section 232 or 301 tariffs . Established tax principles provide a framework for tariff refund scenarios Although some uncertainty remains regarding refund administration and timing, established tax principles provide a framework for addressing several common tariff-refund scenarios. The appropriate treatment generally depends on how the original tariff was treated, whether the related property remains on hand, and when the taxpayer’s right to the refund becomes fixed under its accounting method. Raw materials already sold: A refunded tariff is generally included in taxable income under the tax benefit rule to the extent the earlier inventory or cost-of-goods-sold treatment reduced tax. The inclusion generally occurs when the right to the refund becomes fixed under the taxpayer’s accounting method. Self-employment tax: Some tariff refunds may be taxable for federal income tax purposes without being included in net earnings from self-employment. Raw materials still in inventory: If the goods that generated the refund remain on hand when the refund right becomes fixed, the refund generally reduces the cost or value of inventory rather than creating current taxable income, provided the adjustment is properly treated as an inventory cost adjustment. Capital equipment: A tariff refund tied to capital equipment is generally treated as a basis adjustment under IRC Section 1016 and Treasury Regulation Section 1.1016-3, rather than as a simple tax-benefit-rule recovery. If the asset remains owned and has a remaining adjusted basis, the taxpayer generally reduces the basis and adjusts depreciation prospectively over the remaining recovery period. If bonus depreciation or Section 179 expensing was claimed, the basis decrease may reduce otherwise allowable depreciation in the year the decrease is taken into account. If the asset is fully recovered or was disposed of before the refund right became fixed, the recovery generally is reflected through basis and gain-or-loss mechanics. Taxpayers should coordinate the implementation with their fixed asset specialists. R&D tax credit supplies: If a refunded tariff was included in the cost of supplies used in qualified research, the taxpayer may need to revisit its Section 41 qualified research expense calculation. If the original credit year remains open, the taxpayer generally should recompute the credit by reducing qualified research expenses for the refunded tariff. If the year is closed, the issue is better analyzed under the general credit-recovery rule of IRC Section 111(b), which may increase tax in the refund year to the extent the earlier research credit reduced tax. This approach is similar to the treatment the IRS has applied to Employee Retention Tax Credit recoveries. Read more Tariff refunds for manufacturers: What to do next R&D tax credits can lower your tax bill. Do you qualify? Tariff update: New Section 301 tariffs, Section 232 and more
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