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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
ARTICLE
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?
CASE STUDY
Cultivating leadership unlocks breakthrough growth
See how Thompson used intentional leadership development to grow from $8M to $60M in revenue and expand its capacity for mission impact.
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Performance management consulting FAQ
Strategy and operations consulting services help organizations develop a vision for their future and execute on practical plans to achieve it, including improving the processes and systems they need. These services typically include support to help:
- Develop strategy
- Evaluate growth opportunities
- Execute on organizational goals
- Improve processes
- Increase efficiency
- Reduce costs and waste
- Select software
- Manage change such as modernization, mergers or expansion
- Enhance financial performance
- Remove operational barriers to growth
Wipfli’s performance consulting services for businesses and organizations include:
- Strategy: Strategy development, strategy implementation and digital strategy development.
- Operations: Business process analysis and improvement, continuous improvement advisory, software selection, change management, project management and business analyst services.
The main outcome organizations can expect from strategy and operations consulting is better performance across their organization or in the specific process or function they want to address.
For strategy, Wipfli helps you move past static planning so that your organization can adapt to a challenging, rapidly evolving business environment.
Our focus on alignment keeps your people and strategy unified, so when change occurs, you’re prepared to pivot effectively. And we ground every plan in a deep understanding of your organization, allowing us to tie strategies directly to the gaps that are limiting performance while maintaining flexibility to respond as priorities shift.
For operations, Wipfli helps organizations identify the root causes of operational inefficiencies and redesign processes to improve consistency and reduce costs.
We work alongside your teams, leveraging our broad industry experience to better understand how you operate and to provide practical guidance on how to drive better, more sustainable performance. We also look at how technology can enable your vision, helping you select, implement and optimize solutions for real impact.
While every engagement is tailored to the specific client, Wipfli’s process for strategy and operations consulting is built on data, organizational objectives and industry-specific context.
Our process often includes:
- Discovery and assessment: Building an understanding of your organization’s strategy, culture, processes and technology.
- Strategy alignment: Connecting your challenges to actionable plans for improvement, and keeping your organization aligned on objectives.
- Implementation support: Applying proven methodologies to help you implement initiatives, technology and strategy effectively.
- Measurement and optimization: Tracking key metrics to demonstrate impact and identifying areas for improvement.
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