Commodity Costs Rising, But Savvy Buyers Managing to Push Back on Supplier Price Boosts

Suppliers point to upward trends in prices on metals and petroleum to justify hikes, but analysis of margins shows supplier arguments for increases may lack credibility, ALERTdata reports

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Port Angeles, WA — October 6, 2009 — Commodity costs are rising, but buyers and cost controllers who have analysis of margins on their side are pushing back with success to hold price hikes down, according to the latest ALERTdata report from Thinking Cap Solutions.

Suppliers now are pointing at rising commodity costs (especially metals and petroleum) to provide justification for price hike proposals. But analysis from the ALERTdata Web site shows supplier arguments for price hikes may lack credibility.

According to Elizabeth Baatz, economist and editor at, many industries raised prices back in 2007 and 2008 to offset rising commodity costs. When these costs plunged in late 2008 and early 2009, did suppliers rebate their previous price increases? In most cases, the answer is an emphatic no, says Baatz.

"Commodity prices have a long way to go down before cost-based arguments again favor suppliers over buyers," says Baatz. "This is a nuanced analysis that smart supply managers are using to hold back price hikes."

Baatz said that, thanks to commodity cost hikes, margin declines were widespread among manufacturing industries, yet still ALERTdata's cost/price metrics show average industry margins are running quite high.

Indeed, the most recent solve of the ALERTdata Leveraged Metric Intelligence (LMIQ) model shows 405 out of 457 industries enjoy margins that are higher than those earned a year ago, and 352 industries show margins that exceed long-run norms.

Supply managers who understand the relationship of costs, prices and margins are able to beat back price increases successfully, Baatz said. In fact, applying price/cost escalation analysis has been particularly helpful for buyers of fabricated metal products and components, she noted.

Thinking Cap Solutions produces ICE-Alert, a monthly report summarizing cost/price/margin trends in U.S. manufacturing, as well as its "Blueprints for Supply Chain Managers." ALERTdata's member subscribers include strategic supply managers, pricing analysts, category managers and cost controllers, who use the monthly updated cost analysis reports available for each of over 450 industries on

Baatz said that ALERTdata plans to add new cost reports for 100-plus non-manufacturing industries such as trucking, advertising and IT services, among others.