Industrial Distribution Supply Chain Update: August 2022
Challenges of port congestion in the U.S., shortages of truck drivers, and elevated global freight rates and shipping container costs have challenged distributors. In our latest Industrial Distribution Insider, we round up the thoughts of key executives in the space and how they are dealing with supply chain issues throughout the industry.
“Supply chain pressures are starting to ease, said Ferguson (LSE:FERG) CEO Kevin Murphy, in the company’s FQ3 2022 earnings call. “We’re not seeing it across the board, but it is continuing to improve in spotty areas, product by product, category by category.” He continued, “…it’s really incumbent upon us. And what we’re working on today is making sure that we’re communicating extremely well with our customers and with our customers’ customer…and making sure that we understand what is product availability so that we minimize that pull forward of ordering activity to get back to a much more consistent ordering pattern to serve projects. That’s happening today.”
“The strength of our global supply chain and strong balance sheet means we can reliably serve our customers in a period of supply chain pressure,” Murphy told MDM in a January 2022 interview. Ferguson leans on its sourcing, inventory, distribution and branch network, fleet, and global logistic capabilities to “get our customers what they need, when they need it.”
“Our distribution and branch network are a big advantage,” Murphy added, enabling the company to position inventory close to the customer. Murphy spoke of market conditions in Asia where COVID-related factory closures, energy shortages, and port-capacity limits have eased. Sentiment was positive among Ferguson’s suppliers, which predicted a strong year in 2022.
“There is some pent-up demand not getting filled right now,” said Erik Gershwind, CEO of MSC Industrial Direct (NYSE:MSM), in the company’s FQ2 2022 earnings call. Gershwind indicated that supply chain easing is “not happening quickly” which is constraining growth. “We’re not being overly skimpy with how we’re thinking about inventory right now, said Kristen Actis- Grande, CFO of MSC Industrial Direct. “We are kind of flexing the balance sheet there strategically, making sure we’re building a buffer where we can to service our customers.”
WESCO (NYSE:WCC) CEO John Engel attributes success in managing the supply chain to “selective investment in inventory” and a “… stronger, broader set of relationships with our supplier partners,” a direct result of its combination with Anixter. “We’re maintaining very high fill rates and high availability, consistent with … normal business operation,” said Engel, in the company’s FQ2 2022 earnings call.
MDM partnered with Esker in a recent webcast to explore how automation can help to build more agile and resilient supply chains. By automating processes for order management, order-to-cash, and accounts receivable, distributors can improve order-fill rates, reduce personnel overhead, and improve customer and employee satisfaction, offered Esker Business Development Manager Nick Carpenter. “Using automation and A.I. also will likely help some distributors more easily recover from supply chain problems brought on by the COVID-19 pandemic,” Carpenter added.
A.I. and machine learning tools can automate back-office functions and improve customer service operations, which could help alleviate ongoing labor shortage issues. Fastenal (NasdaqGS:FAST) CFO Holden Lewis told MDM, “At this time, the marketplace for personnel is very tight, and we have had difficulty adding the personnel needed to keep up with growth. We have mitigated this through operational and technological productivity improvements, an increased focus on training, as well as higher wages, but we are still operating at a headcount that is below where we would like it to be given the strength of the market and our growth.”
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