The Tight Supply Side
Companies in every part of the supply chain are wrangling with material shortages, high costs and long lead times
Last fall, my husband and I purchased a new dishwasher. We both like to research items before we purchase them, and after hours scouring Consumer Reports and online reviews, we narrowed down our selection to several makes and models.
Upon visiting our local home improvement stores, however, we couldn’t secure any of them. The appliances manager explained to us that they couldn’t get dishwashers in stock, couldn’t keep dishwashers in stock and, even if they could get the actual appliance, there was a high likelihood they couldn’t get the appropriate connection hoses for installation.
Ultimately, we asked what was in stock in our price range, were presented with only one option, and we went for it. The dishwasher was installed just a few weeks later and we’ve been happy with the product.
Our dishwasher buying experience is illustrative of what many companies in every part of the supply chain wrangle with every day: they can’t get product and, when they do, struggle to keep adequate product levels.
I had the chance to sit down with Dan Gray, director of sales at Roto North America, in February to discuss supply chain. He explained how at the pandemic’s onset, most customers predicted a 20 to 40 percent decline for the second half of 2020. After the unexpected market strength, however, companies were actually up 20 to 30 percent, which Gray told me “created a lot of complexity to try to maintain inventory levels accordingly for customers.” Today, after completing four months of activity in 2021, demand has “soared to unprecedented heights,” he said.
Material shortages are also rampant. Lumber prices are rising remarkably high, but the problem is more widespread than just lumber.
Gray referenced a global surge in steel demand, which has backlogged Roto’s steel supplier and resulted in some extended lead times for Roto’s hardware. Gray quoted a recent article from Bank of America that supports this: “The pandemic brought the American steel industry to its knees last spring, forcing manufacturers to shut down production as they struggled to survive the imploding economy. But as the recovery got underway, mills were slow to resume production, and that created a massive steel shortage.”
Global logistic costs are rising sharply, also. Roto has to pay what Gray describes as “premium dollar” to even secure a shipping container to transport goods from China to North America, a phenomenon he says nearly all companies that do business in China are likely experiencing. What had taken five to six weeks door to door now takes eight to 10 weeks.
I asked Dan what his top advice is for companies struggling with supply-side challenges. “Communication is key,” he said. Dialog needs to involve talking about growth initiatives in the context of verifying the supplier can handle growth. He also said it’s important to be willing to place blanket orders for core products. “You cannot afford to run out of key raw material that is used in your manufacturing process because then your whole labor is shut down, and Roto is working to validate alternative suppliers for raw materials.”
Much of this year’s Top Manufacturers reflects Gray’s story. Almost 90 percent of respondents indicated material costs had risen in the past year and 62 percent said their backlogs are longer than a year ago.
But the report also verifies what we all know: the market is solid, demand is high and the industry is set to have a terrific year. As Gray said: “There are a lot of challenges, but the upside is fantastic. … We remain vigilant on the perspective that our industry has been very robust with its activities.”