change overnight
2008-08-13

As our industry knows, market conditions have changed seemingly overnight. Nowadays manufacturers and distributors are caught in the throes of an uphill battle, fighting price spikes and a serious raw material shortage. Keeping the wheels of business spinning has become a real challenge for us all.
Today’s market conditions demand a new mindset—for distributors and manufacturers. For example, say a distributor receives a customer order for 1,000 pieces. After further discussion with the customer, the distributor learns they’ll be using approximately 10,000 of the same part over the coming year. Having this knowledge allows us, as the manufacturer, to quote the distributor a price per each, based on the annual quantity of 11,000.
And if the distributor obtains a purchase order from the customer for 11,000, we’re able to quote and hold one price for the year—manufacturing all of the parts at the same time. Afterward, we stock all the finished parts, then release them to the distributor as needed. Of course, the only way this works is direct communication, planning and cooperation between the distributor and customer as well as between the distributor and the manufacturer.
Admittedly, Fasteners continue to change as the materials to be joined change. Innovation is constantly required and there is now a phenomenal range of fasteners available - our portfolio now includes around 100,000 line items. Manufacturers encounter specific assembly problems and it is up to people like us to come up with solutions. Our industry hasn’t been dealt an easy hand. Yet it’s situations like these that divide the winners from the losers. Successful people discover ways to turn the negative into an advantage. We can do the same. Although certain economic factors will continue to be out of our control, distributors and manufacturers have an option. We can partner together, keeping the channels of communication open to uncover solutions that ultimately will benefit us both.
Back in the good ole days—about 1 ½ to 2 years ago—manufacturers like Vegas Fastener Mfg. could purchase raw materials at prices, which had remained fairly steady for a decade. We also could expect a relatively short delivery time. Now we’re being quoted 40 to 52 weeks for certain stainless steel and high nickel alloys, such as Inconel 718 or A286.
The beginning of 2004 witnessed the dramatic change. Prices rose 10%, then 20%-30% and onto 50% for some alloys, often used at Vegas Fastener Mfg. to produce exotic material/specialty products. Economic factors, the U.S.’s continual rise in consumption and a new player on the scene—China—are among the speculated catalysts, driving prices upward. The China factor alone has tilted the scales with its rising industrialization level and subsequent high usage of nickel and other alloys, doubling that of the U.S. And experts aren’t anticipating China’s consumption to peak until 2010.
Such high global usage naturally results in a raw material shortage. Consequently, major suppliers offer limited supplies while mills are near 100% capacity, compounding the challenge for manufacturers and distributors alike. The question confronting our industry is this: “With such unique challenges, what do we do about it?”
Cooperation and communication. Never before has it been so important for distributors and manufacturers to form solid partnerships, conveying the power of that affiliation to the end user. Working together, we can overcome the most menacing obstacles.
• Planning, Forecasting & Options. It starts with dialogue. Distributors must communicate to end users the challenges facing the industry, then ask revealing questions to help them gain a firm grasp of the situation so they can forecast their needs. For example, one of the many quality distributors Vegas Fastener Mfg. partners with keeps his customers informed—before a delivery issue can occur.
Educating end users and encouraging sincere dialogue with viable options create real benefits for the distributor, being viewed as someone who is concerned with customer needs, knowledgeable and offering added-value service. However, both the distributor and end user also must realize the “just in time” modality is undergoing a serious transformation. Given today’s conditions, they both must understand that having the product “just in time” is possible, but it will take some level of predictions and commitment.