Who's polishing prices?

By Staff -- Purchasing, 9/7/2000

MRO buyers should be able to score some negotiation wins if they use a little perspective. Consider purchases of polishes and sanitation goods. Producers in SIC 2842 boosted average tags 0.9% between June and July 2000. Average prices for specialty cleaning products such as glass window cleaning chemicals, rug cleaners and toilet bowl cleansers rose 1.9%. All told, prices for products made in SIC 2842 jumped 5% between July 1999 and July 2000.

A 12-month view of margins data from Thinking Cap Solutions' cost model shows that inflation-adjusted industry margins have fallen 90 cents for every $100 of product sold which might lead buyers to conclude that July's price increase was a necessary evil. But taking a long-run perspective yields a different story. Currently, inflation adjusted margins in the sanitation products industry remain 33 cents (per $100 of productsold) above their five-year average. Although producers in SIC 2842 have seen shrinkage in recent months, margins still look good relative to the historical average. Upshot: Producers in the sanitation products industry could afford to lower prices 0.8%, an amount almost equal to July's increase, without pushing margins below the five-year norm. MRO buyers will find similar stories in the industries that make welding apparatus, air and gas compressors, and fluid power valves and hose fittings.

*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 ebaatz@ice-alert.com.