Community Magazine

Community-Fall2025

IPC International Community magazine an association member publication

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1. Recalibrate your hurdle rates and capital-bud- geting decisions. Assume a structurally higher cost of capital when screening projects. Hurdle rates that were set during the 2015–2021 era likely understate the discount rate appropriate for the next several years. Rerun net present value and internal rate of return analyses with higher real rates, and prioritize projects with faster paybacks, robust cash yields, and flexibility under multiple rate scenarios. 2. Strategically lock in rate risk. As easing begins, consider terming out a portion of variable-rate debt, especially for mission-critical capacity or long-lived assets. Blend-and-extend refinanc- ings, interest-rate swaps, and interest caps can hedge exposures. Use the first cuts as a win- dow to shop terms, not as a reason to wait for 2010-style lows that are unlikely to return. 3. Rethink equipment financing. With policy rates stepping down only gradually and term premia positive, lease-versus-buy decisions may tilt to- ward operating leases for noncore assets, preserv- ing balance-sheet flexibility. For core production assets with high utilization, fixed-rate purchase financing can protect margins against rate volatil- ity. Work closely with OEM captives and banks to compare all-in costs and residual assumptions. 4. Tighten working-capital discipline. Higher real rates increase the opportunity cost of cash tied up in receivables and inventory. Sharpen your credit policies, expand the use of dynamic discounting with key customers, and accelerate the cash con- version cycle through better demand forecasting and inventory optimization. Supply chains are no longer in crisis, which allows tighter reorder points and more surgical safety stocks. 5. Pressure-test your M&A math. Valuation mul- tiples tend to compress when real rates are higher. If you are a buyer, model more conservative exit multiples and cost of capital. If you are a seller, build a value story around resilient cash flows, pric- SHAWN'S SUGGESTIONS FOR MANUFACTURERS FA L L 2 0 2 5 C O M M U N I T Y M A G A Z I N E 2 7 ing power, and cost takeout rather than relying on multiple expansion. Private credit remains available for quality deals, but underwriting is selective and covenants are stricter than in the last cycle. 6. Prioritize automation that substitutes for scarce or expensive labor. Where labor avail- ability and wage growth remain firm, automation and advanced analytics that raise throughput and reduce scrap can deliver high risk-adjusted re- turns even with a higher discount rate. Focus on modular deployments that show value within 12 to 24 months, then scale. 7. Reduce your complexity to release capacity and cash. Higher real rates raise the cost of hold- ing inventory and work in process. Trim low-ve- locity SKUs, standardize components, extend run lengths, and cut changeovers. 8. Strengthen supplier negotiations. The ISM Prices Index and the Global Electronics Association's sentiment indexes indicate persistent input-cost pressure in key categories. Leverage multi-year vol- ume commitments and vendor-managed inventory to trade price stability for demand visibility. Where feasible, dual-source critical components to re- duce exposure to single-supplier price shocks. 9. Use the easing window to refinance receivables programs. As the Fed trims rates, asset-based lending spreads may narrow modestly, even if standards stay tight. Refresh supply-chain finance and AR securitization facilities to cap- ture incremental savings and diversify liquidity sources ahead of 2026. 10. Plan for currency and trade uncertainty. Positive U.S. real yields can support a firmer dollar, which pressures exporters while reducing the cost of im- ported machinery and inputs. Build pricing strat- egies that can flex with exchange-rate moves, and continue to regionalize supply chains where total landed cost, policy risk, and lead-time benefits justify it.

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