Prices have been popping
By Staff -- Purchasing, 4/5/2001
Producers of porcelain electrical supplies (SIC 3264) started 2001 with a bang, raising selling prices by an average 16.7% over year-ago levels in the first two months of 2001, according to government statistics. But a look at underlying market conditions suggests that producers in SIC 3624 can build a case for keeping only half of this inflation booty.
In 2000, the cost of making a unit of output in SIC 3264 rose 3.5%. Meanwhile, prices for that same unit of output fell 0.9%. Upshot, according to Thinking Cap Solutions: For every $100 worth of product sold, producers shifted an estimated $2.15 away from the bottom line to cover higher spending on direct manufacturing. Producers are also attempting to recoup an energy-related rise in overhead spending. Data shows that between December 1999 and December 2000, industry outlays on heat and power rose 53.7% on a per-unit of output basis. This increase translates into a margin loss of $2.79 for each $100 of product sold.
TCS calculates that in order to offset last year's higher spending on direct manufacturing activities plus heat and power, producers in SIC 3264 needed to increase prices about 9%, which means that about 7% of the January-February 2001 price increase is up for grabs. As the economy cools in first half 2001, growing concerns about market share should motivate producers to be more realistic.
Cost/price analysis Feb-00 Oct-00 Nov-00 Dec-00 Jan-01 Feb-01 Average product price index (annual % chg) 5.37 0.10 -0.47 -1.10 0.26 1.88 Industry direct manufacturing costs (annual % chg) 1.30 2.27 2.45 2.63 2.76 2.85 Direct manufacturing costs per $100 of product $49.23 $51.00 $51.13 $51.21 $43.95 $42.83
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Index, (1991=100)
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% chg
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Manufacturing costs Weight* Feb-00 Jan-01 Feb-01 01/01-02/01 02/00-02/01 Industry direct manufacturing costs 1.000 118.3 121.5 121.6 0.13 2.81 Direct materials-delivered 0.594 114.5 118.3 118.4 0.07 3.39 Freight costs 0.236 126.0 132.7 132.4 -0.21 5.10 Direct materials-undelivered 0.358 106.9 108.8 109.1 0.29 2.06 Imported direct materials 0.064 101.4 100.8 100.6 -0.14 -0.77 Domestic direct materials 0.294 108.1 110.6 111.0 0.38 2.64 Direct labor 0.406 123.8 126.1 126.4 0.22 2.04 Key materials Clay, ceramic and refractory materials
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104.9 109.7 109.9 0.16 4.73 Metal stampings
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104.9 104.8 105.4 0.55 0.39 Lighting fixtures and equipment
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105.4 105.9 105.9 0.02 0.48 Paperboard containers and boxes
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129.4 136.7 136.8 0.06 5.70 |
* 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.
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