Supply Chain Disruptions
Aggregate suppliers battle escalating costs and uncertain delivery times.
By Warren Heeley
Industries worldwide are saddled with a supply chain that has changed dramatically since March 2020, when the COVID-19 pandemic erupted. Double-digit price increases, substantial surcharges and ever present uncertainty about order delivery times became the norm, causing major business disruptions for companies throughout the globe. Today, uncertainty continues to be the “name of the game” as businesses try to sort out whether this is a short-term issue or a supply chain norm for the longer term.
The aggregate industry is by no means sheltered from these supply chain problems. The disruptions began in the pandemic’s first months as production in countries almost everywhere faced closures and lockdowns from government measures introduced to stem the tide of the virus. Economic principles then took over: less supply led to rising prices as the infection waves continued into 2021.
In the Ontario aggregate sector, OSSGA producers and suppliers confirmed that they are paying more for materials while delivery lead times lengthen. Going hand in hand with the mentioned supply chain challenges is the growing inability to find skilled workers to fill positions at aggregate facilities, which also has become heightened because of COVID.
“As an aggregate producer, our company has seen double-digit increases in needed commodities, including steel, parts, equipment and vehicles,” states James Gordon, materials manager at Fowler Construction. “These price increases, coupled with longer shipment timelines and difficult labour markets, are the norm we are dealing with at present.”
Steel prices “have been going through the roof ” says Jamie Armstrong, vice president at Amaco Equipment Inc. This, in turn, has been seriously affecting prices for heavy equipment and vehicles. “The escalating steel costs have resulted in surcharges for our equipment that began at five per cent in early 2021 and have increased to 15 per cent,” says Armstrong. “We are seeing producers delaying purchases and repairing older equipment because of the sizable cost increase to new equipment caused by the surcharge.”
StatsCan’s Industrial Product Price Index (IPPI) recorded an increase of 15.4 per cent from July 2020 to July 2021. Seventeen of the 21 groups in the index showed price increases, with iron and steel prices jumping 50.9 per cent over the 12-month period – the largest increase on record. Energy and petroleum recorded a 46.9-per-cent increase in the same timeframe.
In the past, companies could easily absorb small price increases in commodities like fuel, parts and equipment. However, repeated price increases within a single year simply have to be passed on to aggregate customers for suppliers to remain profitable.
Meanwhile in 2021, the aggregate market in Ontario was busy and saw a spike in demand driven chiefly by the private commercial sector. This has led to inventory challenges for some producers and price increases stayed relatively low. Looking ahead to 2022, the aggregate market may be forced to pass along higher commodity costs in the form of higher prices to customers.
The supply chain for labour is also becoming more difficult to manage. OSSGA members say the industry has had difficulty finding skilled workers for quite some time, a situation that’s become acute with the pandemic. “Literally every position in the aggregate production process is becoming hard to fill,” says Gordon. “We are also having difficulty finding subcontractors for work needed at our sites.”
GOING FORWARD
Though some commodity prices flattened in 2021, a closer look at prices in the last year is needed to see what the future holds. For materials such as steel, parts, equipment and vehicles, price increases since the start of COVID have been steep, with steel topping the list at around 50 per cent.
Economists say a number of developments caused by the pandemic could result in a lengthier period of rising prices and longer wait times on orders. These developments include shortages of materials and skilled labour, countries looking at “inhouse” sourcing of critical materials, and wage increases to attract domestic workers in an attempt to eliminate the uncertainty of offshore supply.
What can aggregate producers do to manage these supply chain issues caused by the pandemic? “The key to this is planning,” states Gordon. “Get ahead of the supply chain problems by starting your planning many months earlier than in the past. Most of all, get creative in your planning process.”
The bottom line is that current supply chain challenges should be looked at in the long term. Producers need to get engaged in managing their way through these difficult times. “The challenges [facing] the aggregate business have ramped up because of the pandemic,” says Armstrong. “The problem is that we do not, as yet, have COVID in the rearview mirror. Producers have to do the best that they can with the tools they have to continue to weather the storm.”
TIPS ON MANAGING THE SUPPLY CHAIN
Here are some steps to explore, developed by supply chain experts:
Take advantage of sale pricing on materials and stockpile needed commodities when the opportunity arises.
Take a look at your inventory approach and decide whether it needs to change based on the current supply chain situation. For now, the “just in time” inventory approach won’t work.
Consider in your hiring approach to include inducements (e.g., immediate benefits when hired, longer vacation as a new hire, incentives or bonus systems, etc.) that will attrach the right people for the company.