Confronting cost pressures, inventory management (Part 2)

The following conversation was edited for brevity and clarity from one of two concurrent Jan. 25 discussions at the 2023 Pit & Quarry Roundtable & Conference. Part one of this conversation can be found here.

PIT & QUARRY: How did you manage inflation in 2022, and what were some of the major adjustments your businesses made?

CHRIS WILLIAMS (CAPITAL MATERIALS): Those pressures were very real for everyone. I think we all know that. We’re incredibly proud of our sales team. The breadth and depth of their customer relationships really drove success in pricing, but with that also came a real need to refocus on planned efficiencies.

We’ve created some programs to really challenge our supervisors and engineering teams to go find things we missed before, because we just didn’t have to dig that deep. The combination of those two things was the key to our success to weather the inflation.

OLIVER NOBELS (SCHURCO SLURRY): The biggest thing we’ve had issues with was bearings. Right now, I have 12 quotes in my desk. I know if I went back and said: ‘Please requote this,’ they’d all have different pricing. That’s where it’s tough. Being privately held, it can help because you can spend the money and your books aren’t as tightly managed. That helped us, but the inflation aspect of price increases is tough to work with.

RICK MADARA (MCLANAHAN CORP.): In years past, if we’re going to sell this widget for $1 million, we know what it costs to make this widget and deliveries are six weeks. Now, the deliveries are 46 and 50 weeks, [and] we don’t know what that widget is going to cost us at that time. We’re taking orders and then hoping the costs don’t go up to a point where we’re losing money. It’s a game we have to play.

We don’t want to arbitrarily put price increases out there. We try to stay ahead of it, but it’s tough when backlog is that great and deliveries are that far out – especially with where inflation is. Hopefully that calms down this year.

What really affected us in 2022 was how far deliveries were [and] accepting orders before we realized how bad the inflation was going to be. We decided to eat those losses and, hopefully, this year we’ll be able to navigate our way through all of that.

ELLIOT ARCHIBALD (SUPREME MANUFACTURING): We have certainly lost projects because of inflation. Part of it has to do with a lot of the projects that we do are requoted year after year until a customer can build up either the demand or on-hand capital to finance the project.

One big byproduct of the large increases for inflation was customers looking at alternative ways to finance projects. Customers may have gone to their banks where they previously may have just wanted to dig in to cash on hand and weren’t getting great rates from their local banks or other equipment finance houses out there.

MICAH TYSVER (U.S. EQUIPMENT SALES & RENTALS): From a dealer perspective, it’s been very challenging when end users want to know what the price of a new piece of equipment is if they were to order it today. It’s tough to tell them: ‘We can’t tell you. We don’t know.’

The manufacturer will quote us one quarter out – and that’s it. For the past year, it’s made it very challenging. We’ve seen a high-percentage price increase every quarter, but you can’t hold us to it because we don’t know what the market is doing.
On the flip side, which is quite a surprise, most of the time the customers have said: ‘I don’t care. Order it. We need it anyway. We have so much work. We need to add a spread.’ The response to it has been pleasantly surprising.

JEFF GRAY (SUPERIOR INDUSTRIES): I think for probably a couple decades we were conditioned to a 3 percent annual increase. It was all about the cost of steel. That’s changed a lot.

In the front end of the inflation related to heavy equipment, it was steel first. Now, it’s everything. I feel like the end user unfortunately hasn’t seen the full brunt of inflation yet because manufacturers have absorbed some of it to soften it for our dealers. Our dealers absorbed some of it in 2022 to soften it to the end users and continue closing deals – or to keep deals that were already closed.

It’s an ongoing battle. Hopefully by the end of 2023, we’ll feel like we’re all on par again and where we need to be from a net-profit level and things will stabilize. But there are a lot of wild cards in front of us.

P&Q: What is your level of concern about an economic recession developing this year and how it might affect your business if one occurs?

TOMASO VENEROSO (AMCAST): I’m not that concerned about an economic downturn. Our industry is resilient. The downturn is an indicator that is important to consider, but for us we still have a ton of business to do. Even if there is an economic downturn, we are not a monopolistic type of company, so I think we can find opportunities.

As far as the producer, our job is to try to control pricing. What I hear from mining companies, quarries and aggregates alike is that they’re not complaining about the price. It is more about trying to control as much as we can that we face as manufacturers. But it’s also about what we can do better in order to justify an inevitable price increase. It’s about what we can do in order to help clients navigate this and justify the price increase with better service, better reliability [and] better quality.

Those are the things producers are more concerned about versus the microeconomic analysis of the economic downturn. Because, again, our industry is pretty resilient. I don’t see panic mode like the IT world or the finance world.