The pricing and cost analysis helps in deriving and forecasting the actual cost of products or services over the forecast period. It considers all the cost components and provides a competitive edge during supplier negotiations. Moreover, the outcome helps procurement leaders understand detailed and fact-based cost drivers for the category.
In this Personal Protective Equipment (PPE) procurement intelligence report, we have estimated the pricing of the key cost components. Raw materials form the largest cost component of PPE production. Together with equipment, testing, manufacturing process, and labor, they account for 60-70% of the total cost. In PPE clothing, key raw materials may include Polyethylene (PE), polypropylene (PP), polyester (PET), microporous fabrics, or spunbond meltblown spunbond (SMS) etc. PP and PE prices have steadily increased in the U.S. since 2021, due to tight supply, low imports, supply chain disruptions impacting production, and power outages. Prices have increased by more than 40-50% since the end of Q4 2021.
Testing also impacts the prices directly as it involves the safety of the workers. The PPE products need to adhere to OSHA and NIOSH guidelines. Few examples of major testing standards include – Association for the Advancement of Medical Instrumentation (AAMI), American Society for Testing and Materials (ASTM), American Association of Textile Chemists and Colorists (AATCC), American National Standards Institute (ANSI), Food and Drug Administration (FDA), EN14683, etc.
Every organization and its procurement team look forward to negotiating the best deal while procuring a set of products or subscribing to services. Rate benchmarking involves price/cost comparison of more than one set of products/services to analyze the most efficient combination that can potentially help the procurement team in getting the optimum rate.
The geographical location and the feedstock costs for PPE production play a vital factor in analyzing the rate benchmarking of PPE market. We have analyzed the manufacturing costs incurred in APAC and U.S. Polyethylene, polypropylene, and polyester (PET) consumption increased significantly in the Americas such as Brazil and the U.S, and in Asian countries such as India, Indonesia, China, Japan, and South Korea, which in turn increased the overseas prices in 2022. Similarly, the increased consumption in manufacturing and healthcare industries has put pressure on other industries to meet demand which further spiked up prices. For instance, it is cost effective to produce PPE clothing in China due to presence of multiple manufacturing sites, pharmaceutical industries, the low cost of labor, and increasing Chinese government initiatives to expand domestic PPE production significantly which turn reduces the cost of production.
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Labor cost is one of the key components of the total incurred costs while offering a product or service. Therefore, an organization must decide on whether the focus category should be retained in-house or outsourced if the organization is providing its products or services at competitive prices. If the organization decides in favor of outsourcing, it must understand the difference in the salary structures of suppliers before selecting a supplier and formulating a negotiation strategy.
According to our research, chemical process engineers (for PPE production) at Honeywell, 3M, and Ansell receive a 10% – 15% higher base salary compared to the salary received by chemical process engineers working in companies such as Lakeland and Radians Inc. However, the year-on-year increment rate in all these companies majorly depends on the Key Result Areas (KRAs).
Organizations may find it cumbersome to continuously track all the latest developments in their supplier landscape. Outsourcing the activities related to gathering intelligence allows organizations to focus on their core offerings. At this juncture, our newsletter service can help organizations stay updated with the latest developments and innovations and subsequently assist in preventing disruptions in the supply chain. We have identified the following developments within the Personal Protective Equipment (PPE) category over the last two years:
In May 2022, Honeywell, as a part of its PPE healthcare portfolio expansion, launched its two new respiration protection products. Both the products, NIOSH certified, are aimed at healthcare workers. The newly designed products were the DC365 Small Surgical N95 Respirator, and the new half mask respirator (RU8500X series). The DC365 is aimed to protect frontline workers who require a smaller surgical mask and the RU8500X series offers higher filtration efficiency with a proper secure fit in diverse clinical settings and is aimed to protect the workers who work long hours shift.
In May 2022, Lakeland Industries partnered with Kappler to strengthen and expand chemical protection for workers in India. The partnership combined Kappler’s advanced suit technology with Lakeland’s PPE offerings. Kappler’s hazmat suits are NFPA certified and will help Lakeland to expand its range of PPE products such as Zytron, Frontlne, and DuraChem gas-tight chemical suits in India.
In October 2021, Honeywell announced the launch of its new line of lightweight and ergonomically designed headgears that can offer face and respiratory protection together to workers working in oil and gas, manufacturing, and chemical production industries. The proprietary, North Primair 900 (PA900) Series Headgear portfolio provides eye-face-head and respiratory protection together and is also NIOSH certified.
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Component wise cost break down for better negotiation for the client, highlights the key cost drivers in the market with future price fluctuation for different materials (e.g.: steel, aluminum, etc.) used in the production process
Offering cost transparency for different products / services procured by the client. A typical report involves 2-3 case scenarios helping clients to select the best suited engagement with the supplier
Determining and forecasting salaries for specific skill set labor to make decision on outsourcing vs in-house.
A typical newsletter study by capturing latest information for specific suppliers related to: M&As, technological innovations, expansion, litigations, bankruptcy etc.
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