The following posting can also be viewed and commented upon on the Supply Chain Expert Community web site.
As many in the supply chain community are aware, the combination of a highly uncertain global economy combined with unplanned disruptive events such as the earthquake in northern Japan have created significantly more challenges to overcome. On both Supply Chain Matters and the Supply Chain Expert Community, we have penned commentaries noting significant supply shortages occurring in multiple industries. The most recent have been pharmaceuticals, high tech components, and especially automotive related.
Last week, the Wall Street Journal reported that while demand for new commercial heavy duty trucks is accelerating, supply shortages are hampering attempts to ramp-up production volumes. Customer demand in the heavy duty truck industry has been severely challenged in the past three years because of new governmental regulations on pollution standards, which have driven up the cost of purchasing a new rig. Now, customers are electing to re-equip their fleets and one forecast predicts a 64 percent increase in sales for 2011. The WSJ noted that Paccar, Inc., manufacturer of truck brands Peterbuilt and Kenworth, jolted Wall Street by reporting Q2-2011 falling short of expectations because of reported shortages. Paccar had a stellar reputation for its record of profitability, hence an earnings miss was significant news. Paccar is now in a position where the supply chain is gating the company’s ability to respond to increased customer demand for trucks.
During the earnings briefing, Paccar Chairman and CEO Mark Piggott had significant commentary to share regarding his company’s supply chain. He noted shortages and supplier capacity constraints span many suppliers and include areas such as tires and chassis components. He further noted that the entire supplier base has suffered as a result of the severe ups and downs that have occurred in the industry, and incidents of temporary supplier shutdowns due to component shortages are occurring every week. Suppliers in this industry serve both automotive and truck OEM manufacturers. He observed that whereas the bankruptcy actions of General Motors and Chrysler in North America had severe impacts on certain suppliers, automotive suppliers in Europe were able to take advantage of broad governmental programs aimed at retaining employment in the midst of weak demand. Rising commodity costs in cooling, electrical, filtration and precious metals are also having an impact on suppliers who need to finance more increased costs. To its credit, Paccar is increasing its investment in supplier capabilities. Piggott notes: “So we want these suppliers to make money. We want our dealers to make money. We want our customers to make money, so we’re going to see what we can do to help them.”…”There’s a lot of people that are rightfully cautious and conservative, and we’re working with them to meet our needs, but it’s not just all rosy out there.”
Supply Chain Matters applauds CEO Piggott for his obvious understanding and informed articulation of what is exactly occurring within his company’s and his industry’s supply chains. Many more CEO’s should be just as educated and knowledgeable and share a perspective for win-win among suppliers and trading partners.
In the meantime, automotive and heavy duty truck industry supply chains will have to deal with the compounding effects of economic uncertainty, higher component costs, and the threats of more disruptive events.
Yet another industry under supply chain stress, and yet another industry scrambling to achieve some form of responsive supply chain planning and management.
Bob Ferrari
