Instrument prices could decrease
Plant engineers who are stocking up on factory equipment and tools have some good bargaining opportunities and a handful of potential pitfalls. You can see the pitfalls clearly enough by looking at the two industries with an F- margin grade. Manufacturers of motors (SIC 3621) and transformers (SIC 3612) have seen their direct manufacturing costs soar to record highs.
Plant engineers who are stocking up on factory equipment and tools have some good bargaining opportunities and a handful of potential pitfalls. You can see the pitfalls clearly enough by looking at the two industries with an F- margin grade. Manufacturers of motors (SIC 3621) and transformers (SIC 3612) have seen their direct manufacturing costs soar to record highs. For every $100 worth of product made, factories that make motors spent $66.07 on direct materials and labor costs, while plants that produce transformers saw commensurate costs at $64.18. In order to restore current inflation-adjusted margins to five-year average levels, prices for the average motor and transformer products would have to rise 3% and 5.4%, respectively. That leaves little room for plant managers to hold down those costs.
Luckily, if your factory tools budget calls for procuring instruments, then you are in much better shape. The three industries that we track — process control instruments, fluid meters and counting devices, and instruments to measure electricity — can stand to drop average prices by between 0.7% (for the last of the three) and 2.3% (for the first). Those price declines would simply return margins back to levels held on average over the last five years.
The key to capturing those price cuts lies in understanding the supplier's materials budget and to a lesser extent their labor costs. The cost of materials remains mostly on a downward path thanks to dropping prices for semiconductor and other electronic components. On the labor front, the trend hasn't been so hopeful. Surprisingly given the state of U.S. manufacturing, average wages in the process control instruments industry, for example, increased nearly 3% in the latter half of 2002. No other budget category had such a large negative impact on margins than labor costs.
Average Product Prices1Change, %, During 12-Mo Ending...
Direct Mfg. Costs2and Margins Grade
Growth in U.S. End Markets3Change, %, During 12-Mo Ending...
NC means data could not be computed.
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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