Equipment supply-and-demand conundrums

The following transcripts were edited from two concurrent discussions at this year’s Pit & Quarry Roundtable & Conference.

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P&Q: Producers: How did your capital spending in 2018 compare to the previous year, and what are your capital spending plans for 2019? What impact has tax reform (i.e., bonus depreciation) had on your ability to purchase equipment? Are there other factors facilitating your ability to make capital purchases? What sorts of lead times did you face? Equipment suppliers: Tell us about the lead times on your equipment and the pressures you faced in 2018 to deliver equipment in a timely fashion. What sorts of lead times can producers expect to face in 2019? What adjustments are you making to your own production to fulfill orders?

Dan Goethel (Rogers Group): We expect to be reinvesting in the business at the same level that we have the past several years. We expect the market will continue. We have our eye out there a couple of years looking at some type of potential downturn. But we want to position ourselves in such a way that we are going to be in a better, more productive position. So relatively even spending this coming year.

Warren Hawkridge (Hinkle Contracting Co.): I think our capital spending is up slightly year over year. It kind of shifts back and forth – some years we heavily invest in plants, and the next year we more heavily invest in mobile equipment. This year, our purchases are a little bit less plant related but more on the mobile equipment side. It is just due to replacement cycles. But lead times are huge factors for us.

John Garrison (Superior Industries): We learned a lot in 2018. There was such a spike in demand that we didn’t see coming. There was a lot of pressure to get equipment shipped.
Going into 2019, there’s that large influx of orders. In fact, we’re booked more now than we had year-end around the same time in 2018. But we learned a lot in 2018, so we changed things around in our factories.

We are stocking a lot more inventory because we see lead times creeping out from our vendors. We’ve found ways to flow standard products and custom jobs that had longer lead times. I think we’ve learned a lot, but I still think that just because of the sheer volumes of orders going into 2019, the lead times are going to be out there.

Rick Madara (Mclanahan Corp.): We see a lot of turnkey stuff happening now and in 2019, and that takes a lot of time. I see those deliveries being pushed out.

For the most part, where producers get upset, and rightfully so, is when you tell them something and you don’t hold up your end of the bargain. I think as long as you are upfront with them on the front end, they can live with that because they can plan around it. That’s our challenge in 2019: to be realistic and know where our deliveries are going to be. But they (lead times) are going to be longer than typical.

The way it looks right now, it’s going to be like that all year. We need to make sure we have an understanding of how long it takes something to manufacture, from start to finish, so the contractor, end user or dealer understands that, and they can plan accordingly.

P&Q: From a producer perspective, how are you going about deciding which equipment to purchase? What kinds of methods are you using to research and make purchasing decisions?

Hawkridge: When we make purchasing decisions, it’s about payback and about dealer support.

Payback is the biggest factor. We try to spend our capital dollars either to offset inflation or reduce our cost, and then we make the purchasing decisions – if the products are equal based on what kind of support we get from the local vendors, what parts availability is.

Goethel: I would agree with that, but we still look at price. We want the payback from the investment, but it needs to be in a reasonable range with the competitor we are comparing it to.

Travis Wise (Wingra Stone): I think the producers here are seeing long lead times and larger size of orders this year. Are they getting pushed farther and farther out?

Craig Lamarque (John Deere): Our expectation is that lead times will improve in 2019. It will vary by model, so as you said, Travis, maybe some products will be a little tighter than others, but generally we are focused on two areas to improve lead times in 2019.

One is what’s already been mentioned in terms of our supply base, working closely with them to ensure they have the capability and capacity to deliver our expectation, and then working internally within our factories to improve efficiency. So, generally, our outlook for 2019 has improved over 2018.

Hawkridge: We are aware of the long lead times on larger orders, and I think we made a verbal commitment for John Deere. I think we made that commitment in August. We want to have it by April 1 when the season starts. If we are going to spend a bunch of money on capital upgrades, we don’t want that equipment showing up in September. We need to have it when we start our season so we get the return on our investment in the current year.

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The following transcript was edited from a concurrent Pit & Quarry Roundtable & Conference discussion.

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Ross Duff (Duff Quarry): We have been courting the idea of adding capacity to our crushing plant the last couple of years. With the tax code and the demand, we decided to take the leap. We ended up purchasing a surge tunnel and changing the primary feed from Stedman Machine.

We’re in progress on the construction. We felt as though we couldn’t lose with the tax code and with the demand. With the labor shortage, by being able to feed our plant autonomously, we’ll be able to run an entire second shift. I’m talking a 900-ton-per-hour plant.

We’ve got all of our automation on iPads, and we run our whole plant by basically having a plant man times two. (Of course, to be legal by the Mine Safety & Health Administration, you can’t leave anybody alone on a plant site.) But we’re looking at that to be able to combat the availability of aggregates, meeting our production demands, and then the shortage of labor.

As far as rolling stock, it’s if you can get the equipment. With the used market, if it’s available, there’s either something wrong with it or it won’t be on the market for long. On the new side, we saw 18 to 20 weeks out in purchasing a rock truck from Cat, so it didn’t happen. We bought our first Komatsu, and I’m very happy with it.

Mary Erholtz (Superior Industries): We’ve got strong bookings on the manufacturer side. We’ve had to get really creative with our production schedule and second shifts. It is definitely a challenge, because we want to be able to sell the equipment and not have you go somewhere else.

We have production facilities between Canada and the U.S., so we’ve gotten really creative with tracking in all those lines full and getting our customers something they need in a timely fashion.

Stewart Petrovits (Route 82 Sand & Gravel): We’ve had issues purchasing new products, as well as rolling stock. Our preferred vendor told us it would be a year from the day we order until the day we received it. We want everything the way we want it. Our secondary vendor was much better: six months.

One of the things we’re really excited about in terms of “yellow” iron is we’ve started using a Caterpillar certified-rebuild program. As we add a machine, we’ll take an older machine, put it into lighter duty somewhere and send that machine out to Cat. It will come out of the plant with a brand-new serial number and a 5,000- or 6,000-hour warranty.

We’re really negotiating and paying for extended, all-inclusive warranties and maintenance upfront now. And we can take that machine, which, frankly, doesn’t have the depth, doesn’t have the electronic headaches, and put it into light duty.

We’re an S corporation tax wise, and you don’t have to wait to get it. It’s about two-thirds the cost of new. We’re doing a 966 [wheel loader] now. That’s going to be followed by a D7 bulldozer.

Lee Heffley (Brandeis Machinery): 2018, as you guys mentioned, was challenging. It was certainly challenging for us as distributors.

The challenges were the demand for equipment and availabilities. Like Mary said, we’re trying to be there for everybody that wants to buy our machines.

Our manufacturers – Komatsu, Epiroc – have done as good a job as possible in adjusting to the increased demand and trying to maximize production. I can’t say enough about our Komatsu dealer network in working and pulling together to make sure everybody gets machines they need. I feel like a kid trading baseball cards sometimes – got it, got it, need it.

As Stewart said about the rebuild side of the business, our rebuild center in Louisville is probably booked out easily 12 months, if not further, and cycling machines.

Dave Ciszczon (Polydeck): We supply polyurethane and rubber screen media. We really supply three different industries. We do aggregate, which is one of our biggest; mining, as in copper and other things; and also coal.

It’s unusual, but for the last three or four years the sales have been strong in all three. It used to be mining might be down, but aggregate would be up. Well, in the last few years, they’re all up, which is obviously pushing things to the limit to meet producers’ needs.

We’re constantly looking at how we can be more efficient, too. We’re looking at bringing people on, but that brings challenges, as well. There is a shortage in labor, so we’re constantly looking at how we can be more efficient. Business is really good, but it is forcing us to really look at how we do business.

Don Moore (Craft Bearing Co.): We’ve had to make a lot of improvements in our production machinery. We’ve replaced all of the older machines with new computer-controlled machines that are so much faster. Production time is down to maybe a third of what it was in machine time and, sometimes, a sixth. These new machines are much faster. But more importantly, they’re more accurate, so we’re getting a better product.

Alex Kanaris (Van der Graaf): I’m very happy to hear we’re not alone here. We have the same concerns because we’re a manufacturing company. We manufacture gears, drums, electric motors.

We had three-axis CNC machines, but now three-axis CNC machines are no good. We had to move to four axis, and now we’re moving to five-axis CNC machines.

Previously, when you tried to purchase those machines, it used to be ‘sign the check’ and it was in stock on the supplier’s floor. But no longer. Now, we have to wait for about eight to nine months.

Then, of course, we have deliveries, labor and professional engineering shortages. We try to work around these issues. We have to make investments to build our capacity to about 15 percent more than what we need.

This is how we can overcome it, but it’s expensive. You have to keep more stock. You have to have your machines running more efficiently.

Paul Ross (Douglas Manufacturing Co.): In terms of lead time, maintaining inventories for MRO (maintenance, repair and operations) or aftermarket is the key because people need that immediately. Then you have the capital expenditures, which usually have a little bit of a grace period in there – not much, but enough time to accommodate that. So building inventories and maintaining those are critical.

It’s very much a science because that’s your money tied up. You want to turn and move it. But in our industry, where we manufacture pulleys and idlers, if it’s an aftermarket thing, they need it pretty quickly.

In capital [equipment], there’s enough competition in our marketplace that forces us all to be lean and responsive. We had to work smarter. We had to become more efficient. We had to invest in the capital machinery that gets those products out faster and actually does improve quality over time.

Being a U.S.-based manufacturer, [having] about 95 percent U.S. content helps us because we don’t have excessive lead times for any subassemblies. So it’s been amazing that our lead times have not increased. Over the past two years, they’ve actually gotten a little bit better, and we’re able to respond to people in a little bit better fashion.

That does result in a higher costs. That’s the only negative impact on it.

Dana Boyd (NALC): When it comes down to us actually laying out the capital, to us, in our industry, cash is king. So we’re looking at how fast we can get the return on investment.

When we start laying out our capital forecast and start cutting purchase orders for equipment, one of the things we wound up doing is leveraging some of the vendors. It’s like, ‘you’re going to guarantee me service within 24 hours’ or ‘I want a backup machine.’ I can’t afford downtime. So if my machine is going to go down in 24 hours, we’re going to have another one sitting on my yard that we can run.

Alan Maio (Cemex): We see inflationary growth year over year on our capital expenditures. We’re trending up on the capital spend.

There is a big push to go out and bring in contractor services to the aggregate industry more now than at anytime in my 25 years. Because of capital restraints, physical restraints and labor shortages, it’s easier just to de-risk that and give it to somebody else.

The other thing: 10 years ago, from a global sourcing perspective, there was a pretty large delta between European and North American part supply. That delta is shrinking quickly.

China and other countries (i.e., India) are making parts and pieces. Their quality is improving dramatically. It’s a challenge for the European and American businesses and manufacturers to recognize that.

For a lot of us at Cemex, our sort of knee-jerk, involuntary reaction is to buy something from an American or European supplier because of what we’re used to. But there is no longer that quality delta.

Ciszczon: As director of aggregate sales, I’m finding I have to work a lot more with operations now. I can’t stress enough the importance of the sales and operations planning for the year.

If I don’t give [them] a pretty good picture of what’s coming on units and that type of thing – and be as specific as I can – it doesn’t bode well. I can’t even begin to tell you how much more it’s becoming part of my job from a sales point of view.

The other thing we’re doing is always asking our dealers to stock more inventory to meet our customers’ needs. Also, where we don’t have dealers, we’re opening more distribution centers to keep that lead time down.