The business pages have been full of talk about “deflation,” a term used to describe the process of falling prices. The phenomenon, which is being widely debated among economists for its significance, may be having an effect on business at Armite Laboratories in Los Angeles.
The seven-person company makes lubricant compounds that are sold to various types of manufacturing companies. Operations manager Steve Cooper said the present environment of little or no inflation is actually putting a strain on the company. Cooper spoke with interviewer Wade Daniels.
The slow pace of inflation and its slow price increases may make some people and businesses happy, but it has caused a few problems for us. Our company makes anti-seizure, thread-sealing compounds. These are used anywhere there is a threaded fitting to make sure the metals don’t bond together.
Recently, one of our customers told us that they would accept no price increases for our goods in the coming year. They said that things like the slow growth of the consumer price index and the fact that interest rates aren’t moving up mean that the prices of the things they buy ought to stay the same.
What they don’t realize is that prices of some of the raw materials that we use have, in fact, been going up. So far this year, wax has gone up 5 percent, tin is up 3.5 percent, and there is one petroleum product we use that was $2.88 a gallon at the beginning of this year and recently rose by 87 cents a gallon.
We were in a difficult situation last year with one of our main customers, a huge national company with over 6,000 distribution points, which gave us a price ultimatum: They told us they would not accept any price increases. They told us that some of the companies they buy products from haven’t raised their prices in 15 years just so they could remain on board.
Well, excuse me, I don’t care who the customer is it makes no sense for us to sell something for 80 cents if it costs us $1 to make it. So we dropped that customer, and while it hurt our volume of distribution, it increased our per-unit profit percentage.
So that’s what may happen with this company it’s an aerospace company that is giving us the same ultimatum.
As I say, it might hurt our company to lose the volume, but it would hurt us more if we didn’t stop doing business with them. What we have to do to deal with this is quite simple. We have to continue development of new products that our customers can’t do without, and also keep up marketing to find new customers. That’s a basic.