Negotiation opportunities on the rise

Factory managers who are buying equipment and tools have some great negotiation opportunities now. For example, consider the speed changers, drives, and gears industry. Suppliers in SIC 3566 have a habit of hiking prices in the fourth quarter. In the last 4 yr, these increases have gone well beyond the amount required to offset the effects of higher manufacturing costs. Based on the most recently available data, a 2% price hike from October to January is not out of the question.

But such a hike should be easy for buyers to challenge. Data shows that manufacturing costs are up just 1.34% since September 1998. The astute buyer can fight a proposed price hike with a two-pronged attack. First, use weak demand as a weapon. For the year ending in September, U.S. end markets for SIC 3566’s products are estimated to have contracted by 0.71%. Second, use a cost savings argument that focuses on domestic raw materials. Although labor rates in SIC 3566 are up 6.56% since September 1998, costs associated with U.S. made raw materials are down 1.37%.

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