SSI Materials Trend Report
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.
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2 Million SKU’s
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.
Lighting Pushes MRO Prices Up
The phosphors that live inside of fluorescent lamps and give off light when excited by electricity are in short supply. So scarce are they that the price of tubular fluorescent lamps is up by 20 percent or more – with every lighting manufacturer increasing prices. One major fluorescent lamp maker has been increasing lamp prices each month and will continue to do so until phosphor prices stabilize.
What’s behind the phosphor price spike? Prices for phosphors and other rare earth elements have gone up largely because of new tariffs, quotas and restrictions on rare earth mining in China. China holds a virtual monopoly on the world’s rare earth reserves, including phosphors.
Nearly all manufacturers are affected by surging rare earth prices, especially in one critical MRO area in particular: lighting. Manufacturers can’t produce goods in the dark, obviously. As the cost of phosphors looks set to continue its skyward climb, one way to hedge is to pre-buy fluorescent lamps. Fluorescent lamps are among the most-consumed SKUs in most stockrooms.
Efficient LEDs May Provide Relief
Another suggestion is to look at alternatives to fluorescent lighting. LED lighting is highly efficient and longer lasting compared to fluorescent lighting, resulting in a lower total cost of ownership (TCO). With the current rate of fluorescent and CFL price increases, LEDs may become even more attractive as an alternative lighting technology. In addition, some electric utilities offer incentives to business customers that switch to high-efficiency LED lighting. However, LEDs are not immune to rising rare earth costs, as rare earth materials yttrium aluminum garnet (YAG) and cerium (Ce) are commonly used in the manufacture of LED lamps. Nevertheless, the lower TCO on LED lighting is driving many business and government buyers to make the switch, as a recent Wall Street Journal article attests.
Other Commodities Share Volatility
Lighting aside, we are continuing to see great volatility across other commodity areas as well. Plastic film, priced in direct relation to oil, has been volatile as ever in recent months. LDPE film is off nearly 26 percent from its spring high of nearly 90 cents.
Other products, such as paper, have risen steadily, as the above chart illustrates. Paper prices are up four percent from year ago levels as measured by the Producer Price Index.
To combat volatility, we find that standardizing and bulk buying can mitigate risk in the MRO industrial supply space. Moreover, companies can exert pressure on suppliers that institute price increases. This is especially true so long as the U.S. manufacturing sector continues to show weakness in terms of employment, if not profit.
The prices of some materials, such as copper wire, have seesawed throughout the past year. The chart below illustrates the peaks and valleys of copper wire prices over the past year. Again, standardizing MRO buying based on form, fit and function can help mitigate some of the risk when buying items with wildly fluctuating prices. Standardizing increases the value of opportunistic bulk buying strategies, which can result in substantial savings when done judiciously.
Staying ahead of the ever-changing pricing landscape on MRO industrial supply items is a challenge. However, with great volatility come opportunities to standardize and find substitute materials, as in the case of lighting, where LEDs may actually outperform tubular and compact fluorescent lighting and present a lower TCO. Other strategies such as strategic bulk buying can help MRO buyers reach their goals.
