Many sellers try price hikes in first quarter
By Anne M Porter -- Purchasing, 5/7/1998
Inflation may be dormant but it is--most decidedly--not dead, according to a recent Purchasing poll of readers. While many say the giant is sleeping, more than 80% think it will rise up again--and with good reason.Nearly nine out of ten buyers say they have recently received some type of price-hike announcement from suppliers. A few cite personal experiences that are far out of synch with official statistics. For example, one buyer notes that, "Government reports of low inflation understate observed [inflation] rates of 3%-8%." Says another PM: "Although inflation is said to be 2.5%, I saw 3%-5% increases at the beginning of the year." Meanwhile, the PM for a New Jersey manufacturer says, "We are getting some significant increases."
In two related industry segments--paper and packaging--price increase announcements are almost a rule. Forty-two percent of purchasing pros report recent price-hike attempts for packaging and 40% say the same of paper and paperboard. Industry segments showing more scattered--but definite--signs of price-hike activity include (in order): electronic components (23% cite recent price increase attempts), fabricated metals (21%), chemicals (19%), machinery/other OEM (17%), transportation (17%), and primary metals (15%). Trace levels of price-hike activity are noted also in lumber, finished electronics, pulp, glass and clay. Noteworthy is that no purchasers cite recent increases in either petroleum or energy-fuel categories.
Still, the expected success rate for spring price hikes remains relatively low, buyers say. Here are some thumbnail sketches of how they view the various commodity markets--
* Packaging (42% cite recent price increase attempts): Voting is mixed, favoring partial success. Rising input costs (particularly paper/paperboard) are the top reason cited by packaging suppliers, followed by rising labor costs, supply-demand fundamentals, and "margin restoration."
* Paper and paperboard (40%): Mixed voting, full to partial success on paper/paperboard hikes. Justifications emphasize in this order: rising input costs, rising labor costs, supply-demand fundamentals, need for "margin restoration" after a long period of slim margins.
* Electronic components/finished electronics (23%/6%): Mixed voting, too close to call between success and failure. Popular justifications: rising input costs, rising labor costs, supply-demand fundamentals, rising freight costs, "margin restoration."
* Fabricated metals (21%): Unanimous voting, success. Most popular justifications: rising input costs, rising labor costs, rising freight costs, supply-demand fundamentals.
* Chemicals (19%): Mixed voting, partial to full success on certain chemicals hikes. Justifications in order of popularity: rising input costs, rising labor costs, spot shortages, and "margin restoration" after long period of slim margins.
* Machinery/other OEM (17%): Unanimous voting, success. Popular justifications are: rising labor costs, rising input costs, rising freight costs, and supply-demand fundamentals.
* Transportation (17%): Mixed voting, too close to call between success and failure; compromise is likely. Reasons: cost of goods, rising labor costs, tight supply.
* Primary metals (15%): Mixed voting, failure to partial success. Most popular lines from sellers: rising input costs, "margin restoration," futures trading influences, labor and insurance costs.
Asked to name current tactics for fighting price increases, a few buyers say they are still winning with the simple maneuver of refusing an increase. A majority, however, say they have needed to step up their use of competitive bids (see sidebar). What is more, the poll finds precious few claiming that strong supplier relationships have prevented producers from trying increases.
However, despite continued success in stanching the flow of price increase attempts, there remains an overriding sense among purchasers that the days of low inflation are definitely numbered. John Stewart, corporate purchasing director for JLG Industries Inc. in McConnellsburg, Pa., speaks for many when he says "Sellers will charge what they can." While various factors may be causing inflation to lag demand, Stewart says, "eventually, supply-demand will affect price." Steve Ballew, purchasing manager for Lozier Corp. in Scottsboro, Ala., says existence of scarcity ensures that "inflation is never dead." Glenn Hagler, equipment purchasing manager for the Texas Dept. of Transportation says inflation may be "somewhat in remission, but not dead." So far, he notes, "[price] increases have been small and fuel prices are down, but some hot market segments are increasing."
Talkback
Related Content
Related Content
Sponsored Links
View All Blogs
Now Playing:
