Business may be good, butbuyers proceed with caution
By Staff -- Purchasing, 5/21/1998
Purchasing execs across the country appear to be buying with one eye on order books and the other on inventories. Buyers interviewed for Purchasing Magazine's latest grass roots report on supply conditions seem to be less confident than they were at the beginning of the year.And while order books appear very healthy, purchasers are extremely conservative when it comes to inventories. Many, in fact, say they are willing to pay a little more for key items just to assure that the goods will arrive at the plant in exactly the right quantities, according to their preferred time schedules.
Many buyers, it seems, have been instructed by corporate financial officers to keep inventories lean. Others are feeling uneasy based on the fact that business is running at levels far ahead of early-year projections. For some, the idea of getting caught with too much inventory is more distasteful than paying slightly higher prices.
Here are the other changes in buying conditions as reported by Purchasing's grass roots field editors around the country:
* Prices. Most purchasers indicate that prices are little changed from six months ago. Strength in steel prices is being offset by softness in nonferrous metals, chemicals, and plastics markets. Suppliers continue to post price hikes and then follow them with discounts the next month. And while demand remains strong, capacity additions have helped to keep prices in check. Also, in many cases, producer cost increases are not sufficient to justify higher selling prices.
* Inventories. Most companies are working with historically low inventories. Many say they have shifted more purchases to distributors and service centers in order to reduce in-house inventory.
* Outsourcing. Increasing numbers of companies are using contract manufactures and value-added distributors for jobs done formerly in-house.
* Quality. More reports of quality problems. Most are coming from the metalworking industries. In many cases, buyers blame labor shortages.
* Delivery. Buyers also blame a rise in delivery problems on "inexperienced labor doing order fulfillment." In many cases, jobs are held up for lack of experienced workers. Buyers also report an increase in problems involving badly addressed shipments, delayed shipments, and billing irregularities.
* Imports. Slight increase in offshore buying. Attractive prices on imports--especially those from Asian countries--are one draw.
Here are the supply conditions details by major region:
East Coast
Small price increases on galvanized and carbon black wire (2%-3%). Several failed attempts to raise prices on injected molded plastic parts. Prices on some cotton fabric goods expected to decline 3%-5%; leadtimes are down to 6 weeks from eight. Longer leadtimes reported on some leather goods (2 weeks, up from one), steel tubular goods (6 weeks, up from four). Smattering of quality problems on cotton print cloth.
Mid-Atlantic
Prices are down 6% on injection molded plastic parts, 2% on stainless fasteners, 3% on steel stampings. Leadtimes on injected molded plastic parts are down to 4-5 weeks, from 7-8 weeks. Leadtimes on machined parts down from 12 weeks to 10 weeks and on cold-headed fasteners from 10 weeks to seven. Leadtimes extended on hot-rolled steel sheet, from 6-8 weeks to 10 weeks.
Midwest
Quality problems on a number of molded plastic parts. Scattered metal finishing problems. Prices are down 3% on brass forgings and 10.5% on roll-formed brass hardware. Leadtimes on most brass items are down to around 8 weeks, from 10 weeks. Prices on aluminum bar and aluminum extruded tubes are 7%-8% below the peak hit last November. Aluminum seamless tubing is up 5% in price since last January. Delivery problems appear to be on the increase in many parts of the Midwest.
South
Steel is a hot item. Sheet leads are stretched--even from service centers. Many buyers are increasing inventories of sheet, plate, and tubular products. "Right now we have a 90-day order backlog," says Grayling Hill, materials manager with Hilbilt, Mfg. in Benton, Ark. Demand for steel pipe in the oil patch also is climb-ing. In fact, it's now affecting leadtimes for gas line pipe because manufacturers are shifting production over from line pipe. Leadtimes for line pipe are out to four months and are likely to stay that way. Supply of polyethylene pipe also has become tighter over the past three months with leadtimes moving out around two weeks.
Southwest
Buyers are increasing inventories as leads begin to rise. Demand rising fast on steel and lumber. Delivery problems with hydraulic cylinders. Quality problems with auto parts.
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