Inside the profit margin picture

Over the past year, manufacturers have faced some significant inflation challenges, such as sharp price hikes in aluminum, copper, and energy costs.

06/01/2000


Over the past year, manufacturers have faced some significant inflation challenges, such as sharp price hikes in aluminum, copper, and energy costs. Now factory managers who buy equipment and tools will be hearing from suppliers and distributors who want to increase the prices they charge for a host of products. Should factory managers be prepared to increase their budgets for equipment and tools? Not necessarily!

Consider for example the transformers (SIC 3612) industry. For every $100 worth of product sold, manufacturers of power and distribution transformers saw their average margins decline by nearly $1 between March 1999 and March 2000. Rising costs for everything from magnet wire to steel and refined petroleum products have taken a toll on manufacturers' cost structure over the past year. But when we look at the industry's cost structure over a longer 3-yr time horizon, then the picture looks quite different. Indeed, between March 1997 and March 2000, the industry has enjoyed a $3 windfall in profit margins (per $100 of product sold). So factory managers who don't look into their supplier's long-term profit picture may end up paying more than they need to pay.

Price/cost/demand roundup

IndustrySICAverage Product Prices1Change, %, During 12-Mo Ending... Dec 98Mar 99Direct Mfg. CostsGradeGrowth in U.S. End Markets3Change, %, During 12-Mo Ending... Dec 98Mar 99

Other hand and edge tools

3423

1.13

1.11

Rising

B

5.58

5.95

Hand saws and saw blades

3425

-0.17

-0.07

Rising

B

3.55

3.98

Other hardware

3429

1.18

1.85

Stable

A

5.41

5.48

Other power transmission equipment

3568

2.44

2.37

Stable

B

0.07

1.24

Conveyors and conveying equipment

3535

1.78

1.40

Stable

B

-0.14

0.42

Hoists, cranes, and monorails

3536

1.95

1.64

Stable

A

2.45

3.10

Industrial trucks and tractors

3537

0.06

0.11

Stable

C

1.88

2.58

Metal-cutting machine tools

3541

0.41

0.52

Stable

B

8.33

9.23

Machine tool accessories

3545

0.75

0.60

Stable

F

7.92

8.15

Power-driven hand tools

3546

0.65

0.31

Stable

F

3.17

3.73

Welding apparatus

3548

1.27

1.56

Rising

A

3.00

3.36

Pumps and pumping equipment

3561

1.87

1.71

Stable

A

1.15

2.02

Air and gas compressors

3563

1.55

1.61

Stable

A

1.15

2.02

Speed changers, drives, and gears

3566

2.03

1.94

Stable

B

0.07

1.24

Transformers

3612

1.40

2.07

Rising

B

25.94

27.07

Motors and generators

3621

0.08

-0.08

Stable

F

25.01

24.84

Process control instruments

3823

0.89

0.87

Stable

B

5.17

3.36

Fluid meters and counting devices

3824

0.07

0.52

Stable

F

5.17

3.36

Instruments to measure electricity

3825

-0.46

0.11

Stable

F-

32.39

33.69


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.

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).





The Top Plant program honors outstanding manufacturing facilities in North America. View the 2015 Top Plant.
The Product of the Year program recognizes products newly released in the manufacturing industries.
Each year, a panel of Control Engineering and Plant Engineering editors and industry expert judges select the System Integrator of the Year Award winners in three categories.
Doubling down on digital manufacturing; Data driving predictive maintenance; Electric motors and generators; Rewarding operational improvement
2017 Lubrication Guide; Software tools; Microgrids and energy strategies; Use robots effectively
Prescriptive maintenance; Hannover Messe 2017 recap; Reduce welding errors
The cloud, mobility, and remote operations; SCADA and contextual mobility; Custom UPS empowering a secure pipeline
Infrastructure for natural gas expansion; Artificial lift methods; Disruptive technology and fugitive gas emissions
Mobility as the means to offshore innovation; Preventing another Deepwater Horizon; ROVs as subsea robots; SCADA and the radio spectrum
Research team developing Tesla coil designs; Implementing wireless process sensing
Commissioning electrical systems; Designing emergency and standby generator systems; Paralleling switchgear generator systems
Natural gas engines; New applications for fuel cells; Large engines become more efficient; Extending boiler life

Annual Salary Survey

Before the calendar turned, 2016 already had the makings of a pivotal year for manufacturing, and for the world.

There were the big events for the year, including the United States as Partner Country at Hannover Messe in April and the 2016 International Manufacturing Technology Show in Chicago in September. There's also the matter of the U.S. presidential elections in November, which promise to shape policy in manufacturing for years to come.

But the year started with global economic turmoil, as a slowdown in Chinese manufacturing triggered a worldwide stock hiccup that sent values plummeting. The continued plunge in world oil prices has resulted in a slowdown in exploration and, by extension, the manufacture of exploration equipment.

Read more: 2015 Salary Survey

Maintenance and reliability tips and best practices from the maintenance and reliability coaches at Allied Reliability Group.
The One Voice for Manufacturing blog reports on federal public policy issues impacting the manufacturing sector. One Voice is a joint effort by the National Tooling and Machining...
The Society for Maintenance and Reliability Professionals an organization devoted...
Join this ongoing discussion of machine guarding topics, including solutions assessments, regulatory compliance, gap analysis...
IMS Research, recently acquired by IHS Inc., is a leading independent supplier of market research and consultancy to the global electronics industry.
Maintenance is not optional in manufacturing. It’s a profit center, driving productivity and uptime while reducing overall repair costs.
The Lachance on CMMS blog is about current maintenance topics. Blogger Paul Lachance is president and chief technology officer for Smartware Group.
The maintenance journey has been a long, slow trek for most manufacturers and has gone from preventive maintenance to predictive maintenance.
Featured articles highlight technologies that enable the Industrial Internet of Things, IIoT-related products and strategies to get data more easily to the user.
This digital report will explore several aspects of how IIoT will transform manufacturing in the coming years.
Maintenance Manager; California Oils Corp.
Associate, Electrical Engineering; Wood Harbinger
Control Systems Engineer; Robert Bosch Corp.
This course focuses on climate analysis, appropriateness of cooling system selection, and combining cooling systems.
This course will help identify and reveal electrical hazards and identify the solutions to implementing and maintaining a safe work environment.
This course explains how maintaining power and communication systems through emergency power-generation systems is critical.
click me