Inflation in factory equipment and tools can be beaten
Overall, the Plant Engineering Factory Equipment and Tools price index rose 0.9% in the 12-month period ending June 1999. The cost to manufacture, meanwhile, fell 1%. The price/cost mismatch means margins grew and opportunities to argue for lower prices abound.
By Staff -- Plant Engineering, 9/1/1999
Inflation worries bedevil plant engineers who buy some key factory equipment. For example, the industry that makes mechanical power transmission equipment for industrial machinery pushed its average product prices up 3.4% between June 1998 and June 1999.
Plant engineers who are buying hoists and cranes also suffered a 2.39% annual price hike. Prices in the pumps and pumping equipment industry likewise rose 2.09% and speed changers, drives, and gears tags grew 2.04%
Does this mean plant engineers' equipment and tools budgets are out of control? Not necessarily. A savvy purchaser of these equipment will realize that while prices are soaring, so too are the suppliers' margins. In the power transmission industry, the 2.27% price hike coupled with stable costs meant industry margins grew by $2.14 for every $100 of product sold. Plant engineers who attack the industries that have A or A+ margin grades will keep the inflation beast under control.
Price/cost/demand roundup for construction/repair supplies
Average Product Prices1 Direct Mfg. Costs2 Growth in U.S. End Markets 3
Change, %, During 12-Mo Ending... and Margins Grade Change, %, During 12-Mo Ending...
Industry SIC Mar 99 Jun 99 Costs are... Grade Mar 99 Jun 99
Other hand and edge tools 3423 1.19 1.19 Stable A 3.53 3.86
Hand saws and saw blades 3425 -0.03 -0.01 Stable A 2.65 2.81
Other hardware 3429 0.48 0.49 Rising A+ 4.02 4.60
Other power transmission equipment 3568 1.99 2.27 Stable A+ 0.57 0.24
Conveyors and conveying equipment 3535 1.60 1.64 Stable A 6.19 5.13
Hoists, cranes,and monorails 3536 2.68 2.39 Stable A+ 5.87 5.58
Industrial trucks and tractors 3537 0.42 0.39 Stable C 7.55 6.34
Metal-cutting machine tools 3541 1.80 1.10 Stable A 6.93 6.56
Machine tool accessories 3545 1.57 1.40 Stable B 5.94 6.01
Power driven hand tools 3546 1.14 0.85 Stable B 3.02 3.04
Welding apparatus 3548 1.64 1.62 Stable A 3.10 3.44
Pumps and pumping equipment 3561 2.04 2.09 Stable A 2.03 1.75
Air and gas compressors 3563 1.43 1.56 Stable A 2.03 1.75
Speed changers, drives, and gears 3566 2.06 2.04 Stable A 0.57 0.24
Transformers 3612 1.02 0.60 Stable B 17.04 17.01
Motors and generators 3621 0.69 0.64 Stable B 19.43 19.13
Process control instruments 3823 1.50 1.45 Stable A+ 7.07 7.19
Fluid meters and counting devices 3824 -2.97 -1.39 Stable F 7.07 7.19
Instruments to measure electricity 3825 -0.62 -0.92 Stable D 17.34 18.45
1 Average 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.
2 Analyses 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.
3 Growth 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: thinkcap@olypen.com).
