Winds of inflation blowing strong

Smell the whiff of inflation? In the 12-month period ending September 2004, the average cost to make factory equipment and tools jumped 5.6%. That's a sharp detour from the no-to-low inflation trend that had characterized the past 10 yr. By comparison, costs to make equipment and tools increased just 1.

12/10/2004


Smell the whiff of inflation? In the 12-month period ending September 2004, the average cost to make factory equipment and tools jumped 5.6%. That's a sharp detour from the no-to-low inflation trend that had characterized the past 10 yr. By comparison, costs to make equipment and tools increased just 1.6% in September 2003 after falling 0.5% in 2002.

For plant engineers on a budget, running from the stink of higher prices won't be an option. With F-minus margin grades for 10 industries in our equipment and tools market basket, sellers are under extreme pressure to hike prices.

Consider, for example, the top industry: hand and edge tools. Over the last 12 months, industry margins fell to a record low by losing $5.86 per $100 of product sold. This loss was the net result of a 12.5% surge in per-unit manufacturing costs and a meager 2.3% hike in output prices.

The cause of all the problems? Steel. Per-unit spending for steel shapes jumped 47.6% since August 2003. Second-tier concerns include ferrous foundry shapes and energy costs.

Margins most likely will exert significant upward pressure on prices in the near term.

Virtually the entire margin motivation for higher prices has developed over the last 12 months. Thinking Cap Solutions' analysis indicates tags must rise 11.4% in order to generate a fair return on manufacturing-related spending.

In 2005:Q1, suppliers will finally vent by boosting tags at least 1.7%. It's not likely that handtool makers will see anything close to an 11% price hike. But positive demand trends and sector-level capacity utilization data suggest competitive market conditions will prevail.

Price/cost/demand roundup

Construction & Maintenance Supplies

Average Product Prices % Change During 12 Months Ending

Direct Manufacturing Costs and Margins Grade

Growth in U.S. End Markets % Change During 12 Months Ending

Industry

June 04

Sept 04

Costs are

Grade

June 04

Sept 04

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: ebaatz@ice-alert.com).

Hand & edge tools (except saws)

0.04

0.34

rising

F-

0.54

1.50

Saw blades & handsaws

1.12

0.47

rising

F-

0.24

1.26

Metal hardware

0.39

0.68

rising

F-

1.54

2.80

Mechanical power transmission equip.

1.28

1.38

rising

F

6.09

10.37

Conveyors & conveying equipment

0.87

0.91

rising

F-

4.73

6.22

Cranes, hoists & monorail systems

1.33

1.34

rising

F

0.11

1.54

Industrial trucks (forklifts) & stackers

0.86

1.01

rising

F-

-0.22

0.98

Metal cutting machine tools

-1.29

-0.75

rising

F

5.54

7.02

Cutting & machine tool accessories

0.26

0.37

rising

F-

6.44

8.50

Power-driven handtools

0.14

0.30

rising

F-

2.33

3.20

Welding & soldering equipment

0.60

0.83

rising

F-

3.80

5.38

Pumps & pumping equipment

4.91

4.35

rising

C

2.86

4.02

Air & gas compressors

0.74

0.87

rising

F-

4.31

5.61

Speed changers, drives & gears

1.80

1.85

rising

F-

6.09

10.37

Power & specialty transformers

-0.22

0.09

rising

F

2.24

3.66

Motors & generators

0.38

0.30

rising

C

5.20

6.92

Industrial process controls & equip.

2.12

2.07

stable

A

13.87

15.25

Fluid registering & counting devices

2.30

2.30

rising

B

2.84

3.28

Instruments for electrical testing

0.34

0.18

stable

A

6.64

7.64





No comments
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.
The Engineering Leaders Under 40 program identifies and gives recognition to young engineers who...
2016 Product of the Year; Diagnose bearing failures; Asset performance management; Testing dust collector performance measures
Safety for 18 years, warehouse maintenance tips, Ethernet and the IIoT, GAMS 2016 recap
2016 Engineering Leaders Under 40; Future vision: Where is manufacturing headed?; Electrical distribution, redefined
SCADA at the junction, Managing risk through maintenance, Moving at the speed of data
Safety at every angle, Big Data's impact on operations, bridging the skills gap
The digital oilfield: Utilizing Big Data can yield big savings; Virtualization a real solution; Tracking SIS performance
Applying network redundancy; Overcoming loop tuning challenges; PID control and networks
Driving motor efficiency; Preventing arc flash in mission critical facilities; Integrating alternative power and existing electrical systems
Package boilers; Natural gas infrared heating; Thermal treasure; Standby generation; Natural gas supports green efforts

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.
This article collection contains several articles on the vital role of plant safety and offers advice on best practices.
This article collection contains several articles on the Industrial Internet of Things (IIoT) and how it is transforming manufacturing.
This article collection contains several articles on strategic maintenance and understanding all the parts of your plant.
click me