Navigating Supply Chain Challenges in Wire and Cable
By Wesco International
Like many other industries, the electrical wire and cable industry has faced new challenges over the last two years. And as we all know, the global supply chain is more complicated and dynamic than ever before. Increased manufacturing demands and shortages of labor and products are just a few of the issues we face. Let’s review market trends impacting the industry and how effective planning and informed decision making can help you adapt.
State of the Industry
Some of the supply chain challenges the industry is currently experiencing can be traced back to 2018 tariffs on goods from China. From a cost standpoint, this involves the importation of products and the reduction of transport services. This impacts the number of imports that the U.S. currently receives and the time it takes to receive those imports.
Tariffs also multiplied the number of manufacturing companies reshoring and bringing manufacturing facilities from overseas to North America, increasing manufacturing demands. While labor shortages have been an industry challenge for some time, the Covid-19 pandemic has exacerbated the situation. Availability of labor is one of the biggest challenges we have seen for manufacturers to produce cable and keep the lead time short. Manufacturers surveyed by Deloitte in 2021 found that it’s 36% more difficult to hire talent than in 2018.
Rising Costs and Inflation
In addition to labor shortages, the rising cost of commodities and inflation has caused many manufacturers to allocate material so supply may continue to be constrained. According to the U.S. Consumer Price Index, in 2021, aluminum hit a 13-year high, and the price of copper ended 44% higher in Q3 2021 than the prior year, with consistent increased demand in all sectors. In February 2022, the U.S. Bureau of Labor Statistics noted that inflation rose 7.9% over the last 12 months, the largest rise in a 12-month period since 1982.
Accenture found that the pandemic created supply chain disruptions for 94% of Fortune 1000 companies. As of March 2022, transportation costs continue to rise. Truck freight costs have seen a sharp impact, growing more than 16% year over year in October 2021, with the Producer Price Index continuing to climb. Airfreight prices continue to climb as well, with rates up more than 50% year over year as of December 2021, according to the Consumer Price Index.
Since freight costs are related to how far products ship, partners with global facilities can help reduce costs on transportation services. For example, Wesco has facilities in more than 50 countries, helping provide lower total shipping costs compared to other supply channel providers that may source materials from offshore or across the country.
Increased Product Lead Times
We have seen delays on near-term order shipments pushed out due to manufacturing disruptions and an increase in the number of long-term orders placed. The combination of the two is driving up product lead times to unprecedented levels. New urgent orders may be pushed to the back of the line due to manufacturing capacities being consumed by speculative forecast planning. That cycle can repeat, creating longer lead times.
In this market, construction planning is taking place further in advance to secure raw materials, contributing to extended timelines and rising costs. In the manufacturing industry, many organizations are placing orders for products months in advance.
While you may source locally and try to utilize domestic manufacturers, global events still impact us all. Oils are used to manufacture plastics and metals are used to make wires, cables and enclosures. Those commodities trade on a world-wide platform. Disruptions in the global supply can impact your local pricing and availability. Long-term planning and utilization of inventory services can help you minimize supply volatility and smooth out cost variability.
Adapting and Evolving
Forecasting for Dedicated Inventory
Wire and cable customers can mitigate uncertainty by partnering with a supply channel solution expert. The first step we encourage our customers to take is to share a material resource planning (MRP) forecast to plan at least six months out. Disruptions to the supply chain forced many supply channel providers to operate on a first-come, first-served basis. To help solve this additional complexity, we secure inventory with specialized programs for end users or customers. For example, many of our customers put vendor-managed inventory (VMI) programs in place to dedicate inventory on-site, so we can anticipate their long-term needs.
At Wesco, it’s our job to keep the material flowing, so the process is seamless. Proactive partnership and communication with customers are essential to understanding and anticipating demands.
Once long-term forecasts and VMI programs are in place, it’s important to have approved product substitutions for a diversification strategy. Identifying substitutes has never been more relevant to customers than now. Over the last year and a half, we’ve seen more manufacturing customers get deviation approvals on their building materials. If one product has a shortage, customers need to look at the application parameters.
To accomplish this, start by asking the right questions. For instance, we need to understand the voltage and temperature requirements and what the operating conditions need to be for products to be used in certain environments. It’s important to know if products are exposed to oil, gas or anything corrosive. Also, will the product be operating in a high-temperature environment?
Our customers rely on us to provide product recommendations that are not only available but can safely meet those parameters. We have experience working with regulatory bodies including Underwriter Laboratories, the Canadian Standards Association, the Society of Automotive Engineers (SAE) and the International Standards Organization (ISO). Having worked with industry associations that dictate what products can and can’t be used within certain applications, we make recommendations to find the best solutions.
Moving Forward in Today’s Market
The global supply chain is under pressure. Having a partner who understands how to navigate disruptions and leverage global capabilities has never been more important. We guide customers through forecasts, reserving products and sourcing substitutions. Our teams can help you adapt and find alternatives when faced with shortages. We welcome the opportunity to leverage our $2 billion inventory, industry-leading knowledge and value-added services to help build a more resilient supply chain and drive efficiencies to your bottom line.