Indirect and MRO Materials Pricing Trends and Forecast (Part 2)

Please click here for Part 1 in this series.

Courtesy of DSSI's Larry Korak, I was able to share a number of insightful figures and forecasts around MRO demand and pricing trends and forecasts at our Commodity EDGE event last week. In examining the MRO market, I noted that the "modest growth in production activity in 2011" actually drove significant increases in commodity spend, using DSSI's demand and transaction data as a reference. To call out certain categories and SKU areas as examples, abrasives spend saw a 27.16% year over year increase in 2011. This compares with chemicals (54.38% increase), cutting tools (90.16% increase), electrical components (9.22% increase), fluid power (25.91% increase), hand tools (55.47% increase), janitorial supplies (26.96% increase), lubes (12.75% increase), office supplies (21.05% increase), power transmission (9.97% increase) and safety supplies (19.28% increase). These numbers represent the growth in "same plant spend" between 2010 and 2011 across the DSSI client base.

These numbers tell us a several fascinating things. For one, spend equated with direct materials, machine/production time, usage and consumption rose dramatically. But spend tied to labor (e.g., safety supplies, office supplies) rose less, suggesting that manufacturers are focused on getting more from existing labor resources before hiring either full-time or contingent workers. Efficiency gains and better planning ruled the growth day -- not the onboarding of new skilled, semi-skilled and low-skilled shop floor workers.

From a pricing perspective, DSSI observes that "Few price increases were requested between 2008 and 2010" by suppliers but by 2011 "suppliers began to demand price increases across most categories," a move that was "supported by upward movement in relevant PPI components (e.g., energy, coal, crude oil). But through strategic sourcing processes, demand aggregation and becoming a better partner to suppliers, it has been possible to reduce the impact of price increases. We'll share DSSI's experience across safety supplies, cutting tools, fluid power and electrical components in the next post in this series.

- Jason Busch

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