Supply Chain Disruption INDUSTRY PROFESSIONALS GIVE ANSWERS AND ADVICE

Electrical supply chain roundtable conducted by Hunt Electric

Moderator:
Troy Gregory, President & CEO, Hunt Electric

Participants:
Richelle Bishoff, Vice President of Procurement, Border States
Nadina Gilette, Principal, Idaho Lighting Solutions
Eric Hansen, Category Director, Border States
Dave Henrichs, SVP–West Region, ABB Electrification Division
Jim Lankford, District Sales Manager, ABB–Mountain District
David Olney, Generator Sales, Cummins Sales & Service
Dave Richards, Business Dev. Manager, Schneider Electric/Square D 
Casey Schmidt, Category Director-Commodities, Border States
Robbie Shaw, Area Director–Rocky Mountain Region, Border States
Arik Tedrow, Category Director, Eaton Corp.
Tim Sorenson, PC Manager, Consolidated Electrical Distributors

Supply chain disruptions that delay the delivery of construction materials and electrical components are one of the biggest challenges electrical contractors and their clients have encountered in the past several years. Lead times for electrical components are 175 percent higher than at pre-pandemic levels.

Clients and owners frequently ask contractors what is causing these disruptions and what can they do to address them early in the project process. Since there seems to be no foreseeable end to supply chain challenges, Hunt Electric assembled a panel of 11 experts including manufacturers, distributors, wholesalers and installers, to explain the state of the supply chain today, what can be expected expect in the future and what actions builders can take to mitigate the effects of these issues on construction projects.

Troy Gregory: What are some of the underlying causes of a supply chain crisis? 

Eric Hansen: Raw materials and their delivery are big constraints. Over the last two years, acquiring sufficient raw materials has been a constant game of Whac-a-Mole. Once they solve a resin shortage problem a metal shortage problem comes up. It’s been one thing after another. There have been several black swan events that we couldn’t anticipate but have had a major impact on the raw material supply all over the world, such as the war in Ukraine or the resurgence of COVID in China.

Nadina Gillette: Lighting has definitely had challenges with components and freight. Just getting something shipped, especially if you’re getting something shipped from overseas, has been difficult, and it’s a lot more expensive. But we have also seen that vendors are keeping supplies on hand to be more flexible. They are contracting with multiple suppliers and getting better at communicating your expectations and needs.

Dave Richards: Transportation has been one of the issues that has caused all manufacturers a lot of heartburn over the past few years. Trying to get vehicles across the border has been a challenge. We have several facilities in Mexico that we rely on to get product to the U.S. Trailers full of completed product often are getting stuck at the border for weeks at a time due to lack of drivers and security hold-ups at the border. The new transportation rules in California have slowed down trailers moving from the ports. The new rules have limited the number of trucks that we can hook up to trailers sitting at the ports. The new rules require the trucks entering the ports to be newer vehicles. California lost almost half of the trucking or truckers when the rules were implemented. Transportation will continue to be a challenge for all of us. The lack of drivers and equipment across the country have driving the cost of transportation up substantially over the past few years.

Gregory: What are the market issues that most affect your supply chain?

Robbie Shaw: Large players are going directly to some of these bigger manufacturers and negotiating extensive direct buys, to get themselves to the front of the line and open their mega projects quicker. This can cause delays for everyone else.

Jim Lankford: These vendors are not only being pursued by us, but they’re also being pursued by other industries as well. They have a lot of other opportunities and it’s not like they have built a lot of capacity either. So that’s driving up costs.

Gregory: What are the challenges going to be next year in providing the products and services that we need?

Dave Henrichs: Electrical companies still have a record backlog and everyone is still trying to get more capacity, but that’s a strain on all of our sub-suppliers. So the challenge will go on for a while. Lead times probably won’t be coming down significantly anytime soon, with all the pent-up demand in the market.

Hansen: The trend line is moving in the right direction, but this won’t be a hockey stick recovery. The recovery will be very slow. Inventory values are coming up a little while lead times are coming down a little. There will be pockets of items that will continue to be a big challenge. We’re trying to take care of our subcontractor partners the best we can, but we all need to be patient during a slow recovery.

Richelle Bishoff: Labor constraints are a big challenge not only in construction but throughout the economy. Unemployment and workforce participation are at or near record lows. Baby boomers are retiring and the next generation has fewer people to pull from to fill the workforce. I think that will be a challenge for all of us, from all ends of the supply chain. That’s a huge challenge that we’re going to continue to be faced with even beyond this coming year.

Gregory: What is the manufacturing world doing to serve their clients during the supply chain crisis?

Henrichs: On the manufacturing side, complexity and customized products are a challenge. If any reengineering needs to be done, we are telling clients do it up front. In the past, we were more agile and we could accommodate changes, but now any changes that you make to the design really reshuffles the deck and pushes you back. We’ve been encouraging clients to use more configured orders rather than fully engineered products. The less complex the product, the quicker it can be manufactured.

Richards: Complexity is really what causes the slowdown in production. The more complex the gear is, the longer the lead time. The sooner you can get an order placed, the more planning you can do ahead of time. Cut down on the number of change orders, the better the outcome will be. Maybe it isn’t the perfect fit for what you need for your building or facility, but it’ll get the job done. The less complex the gear is, your risk of delay goes down.

Arik Tedrow: We have to think more creatively about these projects from an end-to-end perspective by listing items with long lead times and identifying the factors that extend lead times. Then we can look at cutting purchase orders earlier for long-lead items and short-cycling the submittal process. There are a lot of solutions available to us when we step outside of the traditional box and remove some of the product complexity that slows down the overall project cycle.

Tim Sorenson: You really build from your panel up to your switchboard; the problem is that switchboards have some of the longest lead time. The more standardized your switchboards are and the more generic gear you can include in the design and the more it reduces lead time.

Gregory: What are manufacturers doing to overcome instability in the supply chain and regain control over materials?

Hansen: Since COVID began, we’ve seen multiple manufacturers reshoring, nearshoring and onshoring overseas production back to the U.S., Mexico and Canada or somewhere that’s much closer. It takes time to get that manufacturing capacity online. But bringing production back to the Western Hemisphere will definitely help in the long run. I think reshoring and onshoring capabilities are part of the positive trend line that we’re seeing in manufacturing right now.

Richards: We’re trying to diversify as much as possible and are moving away from traditional places we purchase OEM parts from. Our supply chain team is constantly looking at other avenues. Some of the activities are bringing manufacturing and vendors back to the U.S. This also means going to other areas in the world we may not have done business with before to find OEM parts.

Dave Olney: We are a worldwide company. And the nature of the beast is we do have manufacturing plants and facilities with common centers all over the world, but we’re also trying to bring more of those facilities back home. Other factors such as the chip manufacturing bill will encourage more manufacturing capacity back home where we have more control.

Gregory: What are some things you’re working on to address component issues?

Henrichs: We are seeing manufacturers moving away from the sole-source supplier mentality by ensuring they have two suppliers in a geographic zone where critical components are being manufactured. Our plants all over the world are attempting to localize their supply chain and making sure they have redundancy in the supplier base to minimize logistical challenges.

Gregory: Why don’t you just onboard a new supplier?

Richards: It’s not as easy as it sounds to just go out and say, “Let’s just go find another lug manufacturer and get it from them.” All of our components have to go through the UL approval process. So when we go out and we try and find somebody else, we have to go through that whole process of UL listing, that second vendor's lug for that assembly and all the other assemblies that it would fit in. That’s a very big and time-consuming challenge to make sure new suppliers meet our standards for design and raw material quality. A lot of testing is required before we ever submit to the approval group.

Gregory: How has the manufacturing industry adjusted to supply chain challenges? Have they put permanent measures in place to manage this better if it happens again?

Richards: We’ve learned a lot from a manufacturing standpoint since 2020. We have made many changes, including how we assemble products. We have implemented redundancy for “A” products. We now have multiple manufacturing facilities building the same widget, This practice will allow product to continue being built if one facility goes down. Moving forward won’t be totally out of business for a particular product if one facility shuts down for any reason.

Henrichs: Because of the labor shortage and possibly fear of another pandemic, we’ve seen a lot of investment in automation and robotics. It’s not a lights-out factory in most places, but we’ve tried to get as close as we can. We’ve seen huge investments in automation so that a factory can be run with 20 percent fewer people if needed.

Gregory: Our clients are asking for better communication. They want to know what challenges you’re facing and what’s happening in the world. What can we do to improve communications?

Shaw: I think as distributors, we own that piece. We’ve got to do a better job. We’re coming up with some new integration tools that will allow more seamless communication between your project managers. These tools push information to you rather than requiring you to call and ask for it. I think that’s something that we need to own as the center stone of the supply chain. We’re the go-between so we need to act like it and provide more information than we’re being asked.

Sorenson: When our electrical clients communicate early in the design process information about project schedule and critical dates, we can give more relevant information on the status of the components. This also helps us plan and give more help. Typically, clients tell us that they need components ASAP, but when we receive exact dates, we can be more exact as well.

Shaw: I think that’s going to take transparency on both sides. We need that critical schedule information so we can have those discussions before pulling the trigger on a project. It might mean that the information we give will influence the subcontractor to go back to the general contractor and ask for an extension of the schedule, purely because the current one is just not realistic. We need to be able to have those conversations early in the process.

Hansen: Communication can be improved by doing a true rack and stack of what items are the most important because most manufacturers, if there is a critical emergency that includes liquidated damages, and we’re missing that one last component, will do everything in their power to get that to you. But not everything is an absolute emergency. Be open and honest about that. When we know to hit the gas and really press hard to get that last component that you need at the last minute, we can try to facilitate that. Most manufacturers have been outstanding in getting what we need at the last minute if it’s a real emergency.

Tedrow: Two-way communication is critical to the process. As manufacturers, we must communicate, but we also need information from our clients. Some of the challenges projects face can’t be anticipated, and they present themselves towards the end of the cycle with no warning. With advanced planning and communication there’s an opportunity to really identify critical path items, look at some of the trends that could affect them, and build some margin into the overall schedule around some of these critical path items. I think this would be helpful to the process.

Lankford: The volume of update requests we get on work in progress is overwhelming. One of our customer service representatives was getting somewhere in the neighborhood of 500 to 1,000 emails a week. We are being constantly bombarded, so knowing which requests have the highest priority really helps us filter through them. When clients communicate which components are the most critical, it simplifies and speeds up the process.

Olney: When it comes to communication, we need to do better communicating to you when we have information. We can make this information the most useful to you when you let us know, early and often, what your timelines and goals are so we can help you manage them.

Sorenson: If developers know that they’re going to build a similar building again and again, it helps if they pull the trigger on design as quickly as possible and then order gear in bulk as early as possible to get in line as soon as they can. Start early and get in line as quickly as you can by ordering the gear as soon as possible. This is critical today when the lead times for medium voltage equipment can be from 12 to 16 months.

Shaw: I think we’ve got to put some pressure on the engineering and consultants to write more precise specs. Sometimes we’re given cookie-cutter specs to build a piece of equipment before the client really knows what they want. If it doesn’t meet their needs, we have to go into a spec review that can last months and the delay prevents us from delivering the switchgear when they need it. Ideally, we would like to order your gear when you start digging your building’s footers, so we can get the submittals reviewed and back in your hands, cut the purchase orders and have it procured to reduce delays.

Gregory: What are some things that are improving? What are some things that are getting better?

Dave Henrichs: We are getting better, even though it doesn’t always feel like it every day, but outputs are up and there’s more capacity coming online. We should start seeing the benefits of these supply chain improvements we’ve all been making over the next year. So there is light at the end of the tunnel.

As things normalize, it should be an overall better experience for the industry as we get there. Strong demand is good for all of us, it causes challenges, but it makes it easier to justify large capital investments in new plants because companies see that growth and want to capture it. We see higher demand in the industry in the long term. The disruptions and pressures caused by supply chain issues have led us to building stronger relationships with customers and contractors. I know a lot more about our customers than I did a year ago, that’s for sure.

Bishoff: I think this is a glass-half-full situation. It has forced more transparency, better communication and an increased emphasis on partnership. Recent events have forced that level of communication and openness that I think will only benefit us as things stabilize over time.

Tedrow: I think communication and relationships have improved. I think we’re going to see some improvements in international and domestic transportation. We’re seeing labor improve across the broader manufacturing market, and we’re seeing the easing of the China lockdowns, I think all those things are going to help. And throughout the year we will start to see the benefits of the actions that we’ve discussed today that make suppliers and manufacturers more resilient.

Gillette: We need communication in both directions. We need to communicate better with our partners as far as any potential, lead time, freight or servicing issues, but we also need suppliers and manufacturers to communicate with us. That way we can reassign materials or make some selections that would allow for better lead times and work it out in advance.

Casey Schmidt: In spite of the challenges we have faced, things are getting better. I’ve learned the importance of having an open dialogue, even if it’s not great news. Innovation and automation are going to play a huge part in making manufacturing more efficient. About a month ago, I got a glimpse into the future when I toured a 1million square-foot steel pipe facility. It was fascinating because even though the factory was in a remote area it was completely robotic. I think we will be seeing more of this type of innovation to combat the labor shortage.

Shaw: COVID has forced us to take down our geographical constraints and we’ve been able to bring in new talent that doesn’t necessarily live or work in our geographical area. This brings fresh perspectives, new ideas and opens us up to approaches we haven’t taken before. Another critical component is innovation. There are innovation and automation efforts coming online today that will greatly improve the industry.