Buyers should target hoists & pumps
By Staff -- Plant Engineering, 9/1/2000
Plant engineers can find some excellent negotiation opportunities among suppliers of factory equipment. That's because slowing end-market demand and high margins make suppliers vulnerable to the aggressive buyer. The key is to find suppliers who enjoyed deflation-related margin gains in the last few years of the 1990s.
For example, consider suppliers of hoists, cranes, and monorails. During the year ending June 2000, U.S. end markets for SIC 3536 grew at a rate of 4.72%. This growth rate is slow by historical standards. Despite slow demand, producers pushed average prices ahead by 1.65% over the past 12 mo. With manufacturing costs remaining stable, the industry managed to earn $1.74 more (for every $100 in sales) than was earned on average over the past 5 yr.
The pumps and pumping equipment (SIC 3561) industry also continues to enjoy a deflation-related margin windfall. Here, this industry tends to push product prices ahead in a slow and steady manner. Often price hikes are not linked to changes in manufacturing costs. However, over the last 12 mo, manufacturing costs increased 2.37% while product prices rose just 1.67%.
Industry SIC Average Product Prices1Change, %, During 12-Mo Ending...Mar 00 Average Product Prices1 Change, %, During 12-Mo Ending...June 00 Direct Mfg. Costs²and Margins Grade Costs are... Direct Mfg. Costs²and Margins Grade Grade Growth in U.S. End Markets3Change, %, During 12-Mo Ending... Mar 00 Growth in U.S. End Markets3Change, %, During 12-Mo Ending... Jun 00 Other hand and edge tools 3423 1.12 1.10 Stable C 6.35 6.13 Hand saws and saw blades 3425 -0.03 0.06 Rising C 4.76 4.74 Other hardware 3429 1.85 2.21 Stable B 6.01 5.20 Other power transmission equipment 3568 2.40 1.72 Stable B 1.35 3.20 Conveyors and conveying equipment 3535 1.42 1.13 Stable B 0.38 2.19 Hoists, cranes, and monorails 3536 1.66 1.65 Stable A 4.06 4.72 Industrial trucks and tractors 3537 0.14 0.28 Stable F 2.47 4.30 Metal-cutting machine tools 3541 0.53 0.66 Stable D 9.78 11.43 Machine tool accessories 3545 0.59 0.55 Stable F 8.71 9.02 Power-driven hand tools 3546 0.46 0.33 Stable D 4.10 4.20 Welding apparatus 3548 1.52 1.54 Rising C 3.73 3.40 Pumps and pumping equipment 3561 1.70 1.67 Stable A 2.70 3.43 Air and gas compressors 3563 1.53 1.30 Stable C 2.70 3.43 Speed changers, drives, and gears 3566 2.01 2.05 Stable C 1.35 3.20 Transformers 3612 2.04 3.24 Stable B 27.56 28.71 Motors and generators 3621 -0.05 -0.08 Stable F 25.09 24.27 Process control instruments 3823 0.88 0.86 Stable B 4.24 1.71 Fluid meters and counting devices 3824 0.49 0.85 Stable F- 4.24 1.71 Instruments to measure electricity 3825 0.14 0.83 Stable F 36.52 40.02 |
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).
