The drumbeat of challenges facing shortline manufacturers has intensified these past weeks: stalled shipments, rising prices, impatient customers, and a bonus federal unemployment payment that may create an incentive for workers to stay home.
In late May, executives from member companies talked to Ag Innovator magazine about their biggest battles and how they’re faring in the fight. This article excerpts from the magazine as well a additional interviews.
Kenny Lee, Purchasing/Engineering Manager, Landoll Company
What’s most on your mind?
Our biggest headache right now is logistics—trucks, container shortages, getting containers on ships to get them from overseas. The whole freight system is a mess.
We had a shipment that was on the water for more than four months. It normally would have taken six weeks. It is tough to plan for something like that.
Suppliers continue to push out lead times, and it seems like price increases come with each purchase you send them. And then there’s raw steel. The price just keeps going up.
In 16 years, I have never seen anything like this. I have never seen lead times as a whole look like this. I have seen maybe a certain product in the past, but this is every product.
What do you think is driving it?
I think part of it is related to the pandemic, but I don’t believe that’s all of it. The economy is growing. There is a lot of stuff being produced and sold worldwide. That is going to cause huge supply restrictions across industries and of course across product lines in this industry. We are certainly seeing it in all our product groups.
I think the missed forecasts we’ve seen on steel are a good indication that economists and analysts don’t have a full grasp on the forces driving this situation. There was a widespread belief that steel was going to go down in April, and here we are.
Steve Sukup, President and CEO, Sukup Manufacturing
What is most on your mind?
Our biggest concern is inflation. It is coming. When steel prices double, when rubber prices double, when energy goes up 30 percent … There is not a sector not getting hit with double-digit increases.
When inflation shows up, and the Fed raises interest rates, that’s going to influence things.
What are you seeing in the supply chain?
Last year, we were concerned when the lockdowns started, but if suppliers said it was coming, it arrived. Since February, delays have become a bigger problem.
We’ve gotten letters from suppliers that say “If we haven’t shipped your order within the next 10 days, we will be instituting a surcharge, even if you have it on order.” They are paying new prices, and even when they say we are going to increase in 10 days, they don’t know by how much.
The Section 232 on steel tariffs is hurting us. We have always bought U.S.-made steel, but when the tariffs happened, U.S. companies raised their steel prices. This is the most extreme I have seen. Back in 2006, we saw that steel mills started to run out of their supplies. The difference this time is that they are not running out of supplies, they are restricting capacity. They’ve decided to produce less to sustain the pricing.
We are managing inventories. At the end of the season, we don’t want to get caught with expensive inventories. We need to balance what we are bringing in with what we manufacture and sell, and we need to do that in a way that we can sell it to our customers for a fair price, while we get a fair price for it. That is something the team has to manage, and we have a handle on that.
Kenny Kuhns, Owner, Kuhns Manufacturing
What is most on your mind?
We are a young company experiencing growth and expansion. This is our fourth year of 30 percent growth. The expansion has been in our physical space, our inventory, and our workforce.
We had 37 employees at the beginning of COVID and have 65 now. I am asking at what point might we be expanding into a bubble.
What are your strategies for navigating supply chain?
There’s no strategy, really. This is a time when loyalty to vendors has been valuable. Someone who had six vendors for one part may also have had some advantages.
We have learned we have to communicate with vendors much more frequently than we did in the past. Our regular reliance on software to trigger purchase orders does not work anymore.
Todd Lassanske, General Manager, McFarlane Manufacturing
What’s your biggest challenge?
For us, it is labor. Our backlogs are more than 10 times what they were a year ago. We are at a point where we are turning away orders for our structural steel customers so we can direct more effort to ag orders. Our inventory is not our most significant issue. Our problem is too few people.
Our workforce was fairly stable throughout the pandemic. When orders started picking up, we put together a plan to add people. It is plus one, minus two, plus one … When people can make more money sitting at home, it’s tough.
Any lessons learned on how to find and retain employees?
I’d love to say we have it all figured out, but we are working on it. It is a collective cultural effort with–and for–a great team. We have done a lot of things to recruit good people while also taking care of our current team.
We have used sign-on bonuses, introduced higher wages, and promoted our referral bonus. Our most creative strategy has been to offer a flexible schedule. We asked our team members what hours they wanted to work. They told us, and we held them to that. They picked their 40 hours between 5 a.m. and 4:30 p.m. Monday through Friday.
As our orders have increased, we have gone back to them and said, “How would you orchestrate a 50-hour week, and can we introduce those hours?”
As a result, we are adjusting schedules as preferred by our team. It hasn’t solved all of our labor problems, but we’re being transparent with the challenges we face, and it keeps our whole team engaged in finding solutions.
How have you avoided some of the bigger headaches in the supply chain?
Relationships are key. We have had a few potential hiccups and continue to be proactive by working closely with our suppliers. We secured a significant percent of our steel inventory six months ago. Our steel supplier agreed to sell to us at our current price and hold it for us.
We are getting pinched in the middle as our material prices continue to escalate, and our wages are escalating, we are not finding it reasonable to pass along those costs. We are trying to protect our customers as much as we can. They are facing their own levels of uncertainty and challenges.
Tim Burenga, Vice President of Sales and Purchasing, Worksaver, Inc.
What are your most pressing supply chain challenges?
Logistics by far. Even though we extended our forecasts and planned for this, we are waiting six to eight extra weeks for international supplies.
We moved our container delivery dates to accommodate that delay. We also moved deliveries from the West Coast to East Coast, but everyone else followed that move, and we are still seeing similar delays.
International suppliers that were forced to shut down by government regulations also are causing delays.
Any tips on navigating the supply chain?
Thinking long-range, forecasting long-range and ordering far in advance are crucial right now for manufacturers and suppliers. We currently are buying 12 months ahead on international orders and four-to-five months ahead on domestic supply. It is essential to have that buffer in supplies because of the unpredictability.
Even as we plan, we need to be fluid, and we need to consider the overall picture, to keep the production line flowing. We have to be able to switch gears on the production floor when delays happen.
Strong relationships with suppliers are a must. If they cannot get products here more quickly, they can bring insights that help us plan and offer alternatives that keep our lines moving.
Scott Moss, Business Development Manager, OE, Gates
What do you see as the most pressing supply chain challenges?
The biggest issue we see is labor—both with manufacturers and suppliers, and there is inflationary pressure as wages increase in response to the labor shortage.
Transportation is a definitive challenge right now as well. We see costs added outside of the traditional scope related to expediting materials, seeking alternative supply sources, rescheduling production lines, etc. All of this is part of business, but we see extremes now.
What’s your projection on when this industry boom may slow down?
Companies are scrambling to increase capacity to meet demand. Just about every OEM and supplier I’ve come in contact with has been trying to hire people as fast as they can, many without much success.
As manufacturers do increase capacity and output, and as inflationary pressure continues to make its way to the end user, there will be a come together of the demand. The question is whether this will be an abrupt collision or a gradual one. I do not expect a drastic slowdown in 2021 but expect some slowdown possibly in mid to late 2022.