Actuator costs come down
By Thinking Cap Solutions -- Purchasing, 2/11/1999 2:00:00 AM
Falling material costs have opened the door to more serious price negotiations for buyers of hydraulic and pneumatic cylinders and actuators. Manufacturers of fluid-power cylinders and actuators (SIC 3593) saw their domestic-materials cost bill drop 3.4% in December 1998 from year-ago levels. Falling metals prices have provided the booster shot to industry margins. Carbon steel bar and bar shape prices have fallen 4.9%, on average. Prices for stainless steel mill shapes and forms have dropped 13.2%. Even prices for bolts, nuts, screws, rivets, and other screw-machine products have dipped 0.4%.
With costs for domestic materials accounting for more than 47% of the industry's total cost bill, makers of cylinders and actuators are now enjoying relatively good margins. According to cost analysis by Thinking Cap Solutions (TCS), for every $100 worth of product sold in December 1998, manufacturers in SIC 3593 spent $51.77 on direct manufacturing costs including materials, production labor, and inbound freight. A year earlier, direct material costs per $100 totaled $53.66. Upshot: In the last 12 months, cylinder and actuator makers have realized a deflation-related margin windfall of $1.89 for every $100 of product sold.
But falling metal costs are not the only impetus for improved margins. According to the Bureau of Labor Statistics, the industry has also done a pretty good job of boosting average prices for the products it sells. In the 12-month period ending December 1998, average product prices have risen 1.6%. In 1997, the average inflation rate for this industry was 1.3%.
Thus, in SIC 3593 we see a classic cost/price mismatch where costs are falling and prices rising. Judicious use of cost analyses in negotiations should favor buyers.
Arm yourself with detailed industry cost/price data for upcoming negotiations by calling Thinking Cap Solutions at 360-452-6159, fax 360-457-2913 or e-mail thinkcap@olypen.com. A single DIRECT-ICE ON DEMAND report costs $95 for ICE-Alert subscribers and $190 for non-subscribers.
Fluid power cylinders and actuators (SIC 3593)
Cost/price analysis Dec-97 Aug-98 Sep-98 Oct-98 Nov-98 Dec-98
Average product price index (annual % chg.) 1.25 1.47 1.50 1.54 1.57 1.60
Industry direct manufacturing costs (annual % chg.) 1.39 1.22 1.00 0.73 0.43 0.11
Direct manufacturing costs per $100 of product $53.66 $52.47 $52.44 $52.16 $51.86 $51.77
Index, (1991=100) % chg
Manufacturing costs Weight* Dec-97 Nov-98 Dec-98 11/98-12/98 12/97-12/98
Industry direct manufacturing costs 1.000 112.8 110.9 110.7 -0.17 -1.89
Direct materials--delivered 0.733 111.2 108.0 107.6 -0.43 -3.22
Freight costs 0.021 111.8 116.4 116.7 0.29 4.44
Direct materials--undelivered 0.712 111.1 107.8 107.3 -0.45 -3.45
Imported direct materials 0.014 107.8 103.1 102.7 -0.35 -4.71
Domestic direct materials 0.698 111.2 107.9 107.4 -0.45 -3.42
Direct labor 0.267 117.4 118.7 119.2 0.48 1.59
Key materials
Carbon steel: Bars and bar shapes 114.8 109.5 109.2 -0.26 -4.91
Carbon steel: Unspecified carbon steel mill shapes and forms 114.8 100.7 99.7 -0.98 -13.20
Bolts, nuts, screws, rivets, and screw machine products 107.1 106.8 106.7 -0.16 -0.41
Stainless steel: mill shapes and forms except sheet & strip 101.8 89.2 88.4 -0.98 -13.20
* All weights represent a given category's contribution to total direct manufacturing costs. Prepared by: Thinking Cap Solutions Inc., a company specializing in industry cost escalation analysis for purchasing applications. For more information, contact Elizabeth Baatz, Thinking Cap Solutions Inc. (360) 452-6159, or FAX (360) 457-2913 or E-mail thinkcap@olypen.com.
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