Buyers should target hoists & pumps
Plant engineers can find some excellent negotiation opportunities among suppliers of factory equipment. That's because slowing end-market demand and high margins make suppliers vulnerable to the aggressive buyer.
Plant engineers can find some excellent negotiation opportunities among suppliers of factory equipment. That's because slowing end-market demand and high margins make suppliers vulnerable to the aggressive buyer. The key is to find suppliers who enjoyed deflation-related margin gains in the last few years of the 1990s.
For example, consider suppliers of hoists, cranes, and monorails. During the year ending June 2000, U.S. end markets for SIC 3536 grew at a rate of 4.72%. This growth rate is slow by historical standards. Despite slow demand, producers pushed average prices ahead by 1.65% over the past 12 mo. With manufacturing costs remaining stable, the industry managed to earn $1.74 more (for every $100 in sales) than was earned on average over the past 5 yr.
The pumps and pumping equipment (SIC 3561) industry also continues to enjoy a deflation-related margin windfall. Here, this industry tends to push product prices ahead in a slow and steady manner. Often price hikes are not linked to changes in manufacturing costs. However, over the last 12 mo, manufacturing costs increased 2.37% while product prices rose just 1.67%.
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: firstname.lastname@example.org).