Storeroom Solutions is the only indirect materials firm in North America that delivers industry trend reports benefiting the entire MRO community. SSI buys over 1 million parts for its clients a year – so we can spot trends quickly.
SSI has access to over 2 million parts SKU’s, so we monitor the impact of source materials and economic events to predict cost trends.
Macro pricing trends tell one story, but zoom in on indirect materials and the story is different. While overall pricing pressure has been flat throughout 2012 as measured by the Producer Price Index for intermediate core goods, certain categories of indirect materials are, or are about to, see significant spikes.
The chart below shows the movement in the PPI for intermediate core goods from December 2011 to December 2012. Overall, the PPI has barely budged over the past year, registering a mere -0.7 percent decline.
While some producers of metals have held back on passing along price increases to MRO buyers, prices on many non-ferrous metals are rising 3-5 percent, with the potential for additional price increases on the horizon.
Other industrial supply materials are creeping higher. Suppliers of packaging materials are notifying customers about pending increases in 2013. PPI data for polyurethane foam packaging shows an increase of nearly five percent from December 2011 to December 2012.
“While the volatility in lighting prices has ebbed, lighting costs remain significantly higher than in previous years,” said Don Shoemaker, Storeroom Solutions vice president of supply chain. “The approach to mitigate these price increases is standardization, leveraging size to purchase in bulk and looking for suitable substitute products when possible.” Long term, LED lighting can provide a total cost competitive alternate to fluorescent lamps when factoring energy savings offered through use of LEDs. However acquisition costs of LED still remains high.
There are myriad factors driving up costs in indirect materials, including higher input prices, increased labor costs and the like. According to the Bureau for Labor Statistics, nearly 40 percent of the increase in intermediate producer goods in December 2012 is due to a spike in the cost of basic organic chemicals.
But external factors play a role as well. “As a result of health care reform, companies are facing increased costs and at the same time due to tax law changes worker take-home pay is taking a hit,” said Shoemaker. “That’s a double whammy for manufacturers of increased costs and reduced consumer demand.”
Price volatility continues to be a factor for companies when it comes to the cost of indirect materials. Companies that take a strategic approach to managing this spend are able to more effectively mitigate unfavorable headwinds. Integrated supply firms who can leverage their buying power and focus on the total cost of ownership as comprised of piece price, consumption volume and product mix provide the best possible solution to companies serious about reducing indirect material spend.