Cost Pressures Rising, but Strategic Buyers Still Win

Only 89 industries qualify as obvious negotiation targets for buyers, but expanding to five-year benchmark opens negotiation door wider, ALERTdata reports

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Port Angeles, WA — August 11, 2010 — The number of obvious negotiation targets that favor buyers keeps shrinking as U.S. industries struggle to raise prices at a pace equal to the underlying inflation in manufacturing costs, according to new analysis from economists at www.ALERTdata.com.

The recent analysis shows only 89 manufacturing industries are able to cut their average product prices and still earn a return on their factory spending that equals the return earned a year ago.

With labor chasing too few jobs, rising wages clearly have not been the problem, ALERTdata reports. The problem is the inability of producers to raise prices without losing too many customers, thus forcing revenues to shrink even further in a fragile global economy.

All Is Not Lost

Looking deeper, however, strategic buyers find a whopping 227 manufacturing industries still can cut product prices without seeing margins dip below respective five-year average levels, the analysts report.

ALERTdata's cost model insights allow for a peak into the margin status of a supplier's industry. When industry margins grow, that's when strategic buyers can push for their fair share via negotiated price cuts.

Buyers of softwood, for example, have a solid case for pushing softwood prices down 15 percent to 17 percent. That's because the selling price for softwood increased much faster than the underlying costs of production. As a result, from May 2009 to May 2010, softwood industry margins expanded by more than $11 for every $100 worth of product sold.

Commodity Targets

Joining softwood producers as well as downstream sawmills, many critical commodity industries appear ripe for buyers to win price concessions. Steel mills, aluminum mills and petroleum refining industries all rank among the top 10 in ALERTdata's Negotiation Opportunities table. (See below.)

Buyers of petrochemicals, electrometallurgical ferroalloys, fertilizers, synthetic rubber and particleboard likewise have good reasons to explore and exploit changes in industry prices, costs and margins, the analysts said.

Margin analysis from the Port Angeles, Washington-based economists at www.ALERTdata.com show exactly how much room (if any) the average supplier has to cut prices and still earn same margins as a year-ago or same as five-year-average margin levels. The table below shows top 25 buyers' negotiation targets.

More information is available from Elizabeth Baatz (360-461-3569 or ebaatz@ALERTdata.com), who can also arrange to explore in-depth the negotiation opening for any industry in the ALERTdata cost model.

 

 

 

Margin analysis shows

 

From ALERTdata June 2010 model solve

 

 

Prices can FALL (*excl.  ª)

NAICS
Code

Top 25 Buyers' Negotiation
Opportunity Targets
*

Price
%chya

Mfg Cost
%chya

Year-ago
Target

5-yr-avg.
 Target

321212

Softwood plywood & veneer mfg.

33.7

11.5

17.3%

15.05%

331111

Iron & steel mills

38.1

23.7

15.4%

0.26%

*331312

Primary aluminum production

40.1

18.8

13.2%

 ª 14.75%

325110

Petrochemical mfg.

45.7

24.3

12.6%

5.88%

*331112

Electrometallurgical ferroalloy

25.6

21.9

10.7%

 ª 20.46%

321113

Sawmills

27.1

14.0

10.1%

0.38%

325312

Phosphatic fertilizer mfg.

7.8

-0.7

9.6%

4.62%

325212

Synthetic rubber manufacturing

26.3

17.4

9.1%

20.02%

321219

Particleboard & related product

26.9

13.8

9.0%

9.59%

324110

Petroleum refineries

45.6

32.8

8.8%

9.49%

325182

Carbon black manufacturing

16.0

8.6

6.9%

5.62%

327121

Brick & structural clay tile mfg.

-0.2

4.3

6.6%

4.54%

314991

Rope, cordage & twine mills

9.9

5.1

5.9%

11.01%

326112

Unsupp. plas. pack. film sheet

11.3

6.6

5.6%

1.27%

331422

Copper wire drawing (excl. mech.)

29.5

22.2

5.3%

1.39%

327122

Ceramic wall & floor tile mfg.

1.6

3.9

5.2%

2.33%

327123

Sewer pipe & other struct. clay

0.3

3.9

5.2%

2.92%

325222

Noncellulosic organic fibers mfg.

8.7

5.9

4.7%

1.19%

322110

Pulp mills

19.3

13.5

4.5%

10.01%

316999

Leather machinery belts & other

5.2

1.6

4.2%

1.93%

334511

Search, detect & navigate instr.

1.4

2.5

4.1%

2.06%

333298

Chem. industry &other machinery

1.6

6.6

3.4%

2.31%

333293

Printing & bookbinding machinery

-1.6

3.8

3.3%

2.02%

334515

Electricity & signal test instr.

1.9

0.6

3.1%

5.80%

326111

Unsupported plastics bag mfg.

7.7

6.2

2.9%

3.87%

 

* denotes 5-yr avg. target favors sellers. Green NAICS means industry appeared in last month's Top 25 ranking. Note: Food & beverage, textile & apparel, ordnance, and consumer product industries excluded in this table. 
      



ALERTdata Blueprints (posted monthly at www.ALERTdata.com), BasicIQ in-depth spreadsheets and ALERTdata cost/price/margin forecast supplements are designed so relevant cost analysis insights can be used to drive more productive, lower-cost agreements between buyer and seller. New ALERTdata cost models for service industries are being solved monthly now too. Those Blueprints will be posted monthly as soon as new report templates have been edited. Source: www.ALERTdata.com.

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