Negotiate harder against higher prices

By Staff -- Plant Engineering, 11/1/2000 1:00:00 AM

Now may be the time for plant engineers to take a firmer stand against rising prices among providers of construction supplies. Consider, for example, the millwork (SIC 2431) industry. This industry has made few concessions to weakening construction demand. Over the last 12 mo, millwork tags are down just 55% despite a 5.5% drop in the cost of making a unit of output. Bottom line: Plant engineers who buy millwork products should take a stronger negotiation position.

Stronger negotiation tactics may also serve a legitimate purpose when dealing with producers of precast and other concrete products (SIC 3272). Short-run end-market growth conditions have generated a strong buyers market. Also, profitability analysis indicates inflation-adjusted margins in SIC 3272 are above both their year-ago level and their 5-yr norm. That fact means despite easing demand and the ability to afford a price cut, producers are running in the opposite direction. Last month they pushed prices ahead 0.43%. In 2001, we expect average prices to rise 2.2%.

Price/cost/demand roundup

Industry	SIC	Average Product Prices1Change, % , During 12 Mo Ending...Apr 00	Average Product Prices1Change, % , During 12 Mo Ending... Jul 00	Direct Mfg. Costs²and Margins Grade Costs are...	Direct Mfg. Costs²and Margins Grade Grade	Growth in U.S. End Markets3Change, %, During 12 Mo Ending... Apr 00	Growth in U.S. End Markets3Change, %, During 12 Mo Ending... Jul 00
General sawmills and planing mills	2421	5.42	-0.35	Falling	D	3.32	2.68
Millwork	2431	2.16	1.24	Stable	A	6.03	5.65
Hardwood veneer and plywood	2435	1.65	1.87	Falling	A+	4.00	3.73
Softwood veneer and plywood	2436	5.98	-12.20	Falling	F	4.00	3.73
Metal partitions and fixtures	2542	0.73	0.61	Stable	C	6.54	6.14
Paints and allied products	2851	1.63	1.82	Falling	D	6.57	4.98
Flat glass	3211	-0.51	0.79	Stable	F	22.82	25.71
Other structural clay products	3259	2.17	2.96	Stable	A	6.48	6.17
Gypsum products	3275	16.45	10.89	Stable	C	3.40	2.85
Mineral wool	3296	4.82	1.40	Stable	C	5.16	4.75
Steel pipe and tubes	3317	-0.51	2.20	Falling	A	5.25	5.68
Plumbing fittings and brass goods	3432	2.18	2.69	Rising	B	5.87	5.50
Metal doors, sash, and trim	3442	1.05	1.47	Stable	C	5.61	5.21
Sheet metal work	3444	0.34	0.69	Stable	C	21.36	23.40
Refrigeration and heating equipment	3585	-0.20	-0.40	Stable	D	7.30	4.40
Current-carrying wiring devices	3643	0.03	-0.17	Stable	F-	21.40	22.15
Noncurrent-carrying wiring devices	3644	-0.53	0.56	Stable	D	21.40	22.15
Commercial lighting fixtures	3646	-0.62	-0.28	Stable	D	7.44	6.91
Environmental controls	3822	-0.07	-0.20	Stable	C	5.90	5.56

1Average product price changes are calculated from the producer price index for each 4-digit SIC (standard industrial classification) industry from the U.S. Bureau of Labor Statistics.

²Analyses of each industry's direct manufacturing cost changes are from Thinking Cap Solutions, Inc.'s proprietary Industry Cost Escalation (ICE) model. The "grade" indicates that recent price/cost changes have produced record high (A+) margins to average margins (C) to record low (F-) margins for the average producer in an industry. Grades of A to A+ mean plant engineers may be able to strike a better bargain with suppliers and better control plant costs.

3Growth in U.S. end markets data are from the ICE model and are estimates of output for the domestic end markets which purchase a given industry's products.

All data prepared and presented by Thinking Cap Solutions, Inc., Port Angeles, WA (telephone: 360-452-6159; e-mail: ebaatz@ice-alert.com).

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