Indirect Materials Pricing Trends and Forecast (Part 3)

- March 29, 2012 4:03 AM
Categories: Commodities, Jason Busch, Spend Management |

Please click here for Part 1 and Part 2 of this series.

When it comes to MRO pricing trends in 2011, I leveraged material from DSSI in my breakout presentation noting that suppliers requested, on average, single digit price increases across safety supplies, cutting tools and fluid power (coming in at 6.5%, 5.14% and 5.5%) respectively. For electrical components, the average supplier price increase request was 16.1% in 2011. These requests, however, do not directly correlate with the applicable producer price index (PPI) moves for the underlying commodity/index components, at least by DSSI’s calculations. Consider the PPI component movement by category: safety (12.1%), cutting tools (6.1%), fluid power (11.4%) and electrical components (10.97%).

The ability to leverage this type of analysis in negotiations (especially when you can work directly with manufacturers rather than distributors) can be helpful, especially if you can peg underlying price index information with directly correlated or PPI information when direct comparisons (e.g., oil prices for certain bulk chemicals) are not possible. Using this type of insight, volume leverage, and its overall position as a customer of choice to manufacturers, DSSI was able to keep pricing increases to more reasonable levels across MRO in 2011. Across these categories in the aggregate, safety supplies saw a 6.0% increase (compared with supplier requests at 6.5%), cutting tool increases came in at 4.78% (compared with supplier requests at 5.14%), fluid power increases came in at 4.0% (compared with supplier requests at 5.5%), and electrical components came in at 10.5% (compared with supplier requests at 16.1%).

Looking forward, DSSI sees a number of trends driving MRO price direction in 2012 and 2012. For one, material components of the PMI are “predicting prices growing at a faster rate.” Yet manufacturing growth rates are forecast to slow in 2012. It’s a mixed bag, but overall, one that favors rising or flat prices (not decreases). Stay tuned as we explore some DSSI’s MRO price outlook — on a category-by-category basis — in more detail, as well as a number of summary recommendations for driving MRO savings and cost avoidance strategies in the current climate.

- Jason Busch

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