Supply Chain Disruption: The COVID Effect.

This disruption has triggered serious backlog across the entire construction equipment market, by constraining the rate at which the industry can manufacture and deliver machines. This causes issues such as lack of supply to the wider construction industry, which can impact the pace of residential and commercial development, as well as agriculture and food supply, factors that could begin to affect the global buyers’ market.

The Market Reacts

Large manufacturers are likely to survive despite the impact on prices and wider market availability, however mid-weight companies have the potential to suffer without a step-by-step strategy to guide themselves out the other side of this crisis - predicted to end Q3 (Sept) 2022.

With the pandemic having caused the most rapid economic growth since the mid-1960’s and component supply and logistics constraints, importance of building and maintaining strong business relationships with partners and customers has become vital. The necessity of dealer and OEM alignment and timely information sharing has also become apparent, with digitisation of processes as a key focus for companies such as Yanmar.

Yanmar estimates data adoption as the next step of connectivity, using this to generate easily digestible and actionable information. Tate Johnson, President of Yanmar Compact Equipment North America, said:

If done right, we believe this information will be beneficial to end user customers, dealers and OEMs and is the key for deepened relationships between all parties involved in the value stream.

Other industry-leaders such as Manitou, sees impact on revenue forecast for 2021 due to such severe component shortages, particularly semi-conductor chips, cabs, engines and even steel.

CNH Industrial NV also recently announced that several of its European agricultural, commercial vehicle and powertrain manufacturing facilities will temporarily shut. The maker of farm machinery, Iveco commercial vehicles, construction equipment and powertrains sees disruptions of procurement of components, including semiconductors as too larger risk to continue manufacturing.

Similarly, JCB has announced that products such as diggers, tractors and forklifts are now out of stock for at least the next 12 months, roughly four times the normal lead time. John Deere and Caterpillar have flagged similar issues, with rising costs and supply chain bottlenecks causing a considerable threat to profitability in the months ahead. With neither showing signs of receding, this enormous strain on supply chains for goods is causing a vital knock-on effect to farming and construction industries.

New Year’s Resolution

With most global supply chains remaining China-centric, the past 18 months have seen companies drop with an industry-defining domino effect, wiping out a range of small and medium enterprises whilst the larger players struggle to keep their heads above water.

The initial industry constraints, followed by rapid growth and demand, has exposed the importance of a having well-rounded business offering. Diversifying to include options such as rental, parts, and prioritising end-use customer sectors could be the strategic futureproofing required for companies to emerge stronger than before.

Companies reliant on direct or secondary suppliers in China are likely to continue experiencing significant disruption throughout 2022. The country poses optimistic reports to return to ‘normal’ supply conditions by April, however wider industry projections predict full supply chain revival closer to the end of the year.

The pressure remains on companies to roadmap a survival and exit plan throughout the coming year. Recognising the vast industry growth and opportunities this poses for future product development, training, and expansion.

As labour shortages emerge due to bottlenecking on the factory floor and the adoption of automation, staff optimisation will be key. Utilising these lower-output months to implement optimisation strategies will be key. Implementing a reliable distribution network, optimising key accounts, and retaining employees will be a key factor to continued success as talent gaps widen and the industry reopens. I’m looking forward to understanding what the next year holds for the industry and keeping eyes on how companies react to the impact this will have.

What you are your thoughts on the situation, and how soon can you see us returning to a sense of normality?

If you have any thoughts or comments or would like to discuss this in some more detail with me, drop me an email at abbel.kisanji@industrial-cm.com.

Discover more of my perspective on trends in the construction and heavy machinery market, here.