Who We Serve - Machinery

The Association of Equipment Manufacturers (AEM) has warned that U.S. equipment manufacturers will continue facing supply chain issues and persistent labor shortages throughout 2023, and this will change how many companies manage their supply chains.

For 70 percent of machinery original equipment manufacturers (OEMs), these issues continue to get worse, while 45 percent of component manufacturers are also having issues. As a result, heavy equipment and parts are in limited supply, inventories are low, and prices continue to rise as a result of scarcity and inflation.

OEM’s are impacted when their component suppliers cannot fulfill their orders or have their orders delayed. This leads to difficult choices for component manufacturers since it is not just inventory shortages that are causing problems, but even shortages of raw materials that are depleted to levels not seen since 2010. In one machinery segment, agricultural equipment, this has made it difficult to get spart parts and maintenance supplies. For example, due to a global paper shortage, obtaining different types of filters has become a challenge. Companies that can source parts from multiple suppliers are generally finding more success at reducing supply chain impacts than those that do not.

This has forced some distributors to move outside their comfort zones, change long established purchasing processes, and try new products. Ultimately, some found they liked a new supplier or part option better. A company that once only used two major suppliers for suspension parts now has four. This can create additional difficulties in terms of ensuring the same quality from the new suppliers, but diversification can ease some supply chain shortages. However, in many cases, machinery is partially manufactured then put aside while waiting for a final part in order to complete assembly. Unfortunately, this creates a significant backlog of work-in-progress (WIP), and getting those machines completed before creating more inventory of partially finished machines is critical.

Again, in the agricultural machinery market segment – as an example - many parts remain difficult to acquire, including rubber tracks (and their subcomponents) and tires, hydraulic hoses, oil filters, foam seats, wiring harnesses and other electrical components, undercarriages, and emissions-related parts. Due to these shortages, dealers and rental fleet owners are cannibalizing some equipment to get others out the door into the hands of buyers and lessors. Semiconductors and microchip availability continues to plague many manufacturers. Because of these ongoing issues, behaviors around the equipment lifecycle are also changing, with owners and lessors engaging new mitigation strategies to avoid being impacted by supply chain problems. Some of these include:

• Planning for equipment downtime to avoid parts shortages
• Servicing equipment now to prevent unplanned downtime
• Maintaining and keeping current machines since additional maintenance costs are typically lower than new equipment price increases
• Keeping longer leases or buying out current leases to retain current equipment until new equipment is available at more affordable prices
• Increasing supplier bases by sourcing from different locations
• Increasing parts stock on hand by transitioning from "just-in-time" to "just-in-case"
• On-boarding new suppliers and integrating them into your quality control system

In addition to rising prices, lead times are also increasing, causing further delays for many machinery manufacturers. The average OEMs' lead time has nearly tripled since 2019 and continues to increase. A piece of equipment that previously had a three-month lead time is now up to eight and a half months. As a result, many manufacturers are not accepting new orders from current customers or taking on new customers at all, furthering reducing potential growth opportunities.