Negotiate harder against higher prices

Now may be the time for plant engineers to take a firmer stand against rising prices among providers of construction supplies. Consider, for example, the millwork (SIC 2431) industry.
By Staff November 1, 2000

Now may be the time for plant engineers to take a firmer stand against rising prices among providers of construction supplies. Consider, for example, the millwork (SIC 2431) industry. This industry has made few concessions to weakening construction demand. Over the last 12 mo, millwork tags are down just 55% despite a 5.5% drop in the cost of making a unit of output. Bottom line: Plant engineers who buy millwork products should take a stronger negotiation position.

Stronger negotiation tactics may also serve a legitimate purpose when dealing with producers of precast and other concrete products (SIC 3272). Short-run end-market growth conditions have generated a strong buyers market. Also, profitability analysis indicates inflation-adjusted margins in SIC 3272 are above both their year-ago level and their 5-yr norm. That fact means despite easing demand and the ability to afford a price cut, producers are running in the opposite direction. Last month they pushed prices ahead 0.43%. In 2001, we expect average prices to rise 2.2%.

Price/cost/demand roundup

IndustrySICAverage Product Prices1Change, % , During 12 Mo Ending…Apr 00Average Product Prices1Change, % , During 12 Mo Ending… Jul 00Direct Mfg. CostsDirect Mfg. CostsGrowth in U.S. End Markets3Change, %, During 12 Mo Ending… Apr 00Growth in U.S. End Markets3Change, %, During 12 Mo Ending… Jul 00
General sawmills and planing mills 2421 5.42 -0.35 Falling D 3.32 2.68
Millwork 2431 2.16 1.24 Stable A 6.03 5.65
Hardwood veneer and plywood 2435 1.65 1.87 Falling A+ 4.00 3.73
Softwood veneer and plywood 2436 5.98 -12.20 Falling F 4.00 3.73
Metal partitions and fixtures 2542 0.73 0.61 Stable C 6.54 6.14
Paints and allied products 2851 1.63 1.82 Falling D 6.57 4.98
Flat glass 3211 -0.51 0.79 Stable F 22.82 25.71
Other structural clay products 3259 2.17 2.96 Stable A 6.48 6.17
Gypsum products 3275 16.45 10.89 Stable C 3.40 2.85
Mineral wool 3296 4.82 1.40 Stable C 5.16 4.75
Steel pipe and tubes 3317 -0.51 2.20 Falling A 5.25 5.68
Plumbing fittings and brass goods 3432 2.18 2.69 Rising B 5.87 5.50
Metal doors, sash, and trim 3442 1.05 1.47 Stable C 5.61 5.21
Sheet metal work 3444 0.34 0.69 Stable C 21.36 23.40
Refrigeration and heating equipment 3585 -0.20 -0.40 Stable D 7.30 4.40
Current-carrying wiring devices 3643 0.03 -0.17 Stable F- 21.40 22.15
Noncurrent-carrying wiring devices 3644 -0.53 0.56 Stable D 21.40 22.15
Commercial lighting fixtures 3646 -0.62 -0.28 Stable D 7.44 6.91
Environmental controls 3822 -0.07 -0.20 Stable C 5.90 5.56

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).