Don’t Let the High Cost of Capital Stunt Manufacturing Growth

The Cost of Capital: 4 Critical Focus Areas for Cash Conservation in Uncertain Times

After two decades of low-interest rates, many manufacturers are feeling the cold shock of a higher cost of capital for the first time. The current economic environment is less forgiving, and manufacturers will need to closely examine daily business practices in operations, supply chain, inventory management, and human capital to uncover opportunities to conserve cash. Efforts to maintain and grow cash flow have taken on a greater sense of urgency. Moreover, those companies that want to not just survive but thrive in this challenging economic environment will need to evolve and focus on improvements and changes that will help drive near-term and long-term growth.

TBM leaders, Shannon Gabriel, and David Pate dive into the four critical areas within manufacturing where the cost of capital is stunting growth and provide recommendations to improve cost efficiencies and spur positive cash flow.

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Frequently Asked Questions

Why is the high cost of capital such a significant issue for manufacturers?

The high cost of capital is significant because it raises the hurdle rate for investments and limits access to funding for growth, equipment, and improvement initiatives. The article explains that as borrowing becomes more expensive, manufacturers can no longer rely on capital‑intensive solutions to solve performance problems. This environment puts greater pressure on operations to deliver results using existing assets and resources.

How does a higher cost of capital change manufacturing investment decisions?

A higher cost of capital forces manufacturers to be more selective and disciplined with investments. The article highlights that projects must deliver faster payback and clearer returns to justify approval. As a result, organizations are pushed to scrutinize execution losses, productivity gaps, and asset utilization before committing to new capital, shifting focus from expansion to operational efficiency.

How can manufacturers improve performance when capital is expensive or constrained?

Manufacturers can improve performance by focusing on operational excellence rather than capital spending. The article emphasizes improving execution discipline, uncovering hidden capacity, reducing waste, and strengthening management systems. By extracting more value from existing operations, manufacturers can protect margins, improve cash flow, and remain competitive even when access to affordable capital is limited.