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by Kristi Ruggles

The drumbeat of challenges facing shortline manufacturers has intensified these past weeks: stalled shipments, rising prices, impatient customers, and a bonus federal unemployment payment that may create an incentive for workers to stay home.

Executives from member companies took time in late May to talk to Ag Innovator about their biggest battles and how they’re faring in the fight. These summaries of our conversations blend a few direct comments with paraphrased content.

Kenny Lee, Purchasing/Engineering Manager, Landoll Company

What’s your biggest problem?

Suppliers continue to push out lead times, and it seems like price increases come with each purchase you send them. And then there’s raw steel. The price just keeps going up.

In 16 years, I have never seen anything like this. I have never seen lead times as a whole look like this. I have seen maybe a certain product in the past, but this is every product.

What do you think is driving it?

I think part of it is related to the pandemic, but I don’t believe that’s all of it. The economy is growing. There is a lot of stuff being produced and sold worldwide right now. That is going to cause huge supply restrictions across industries and of course across product lines in this industry. We are certainly seeing it in all our product groups.

I think the missed forecasts we’ve seen on steel are a good indication that economists and analysts don’t have a complete grasp on all the forces driving this situation. There was a widespread belief that steel was going to go down in April, and here we are.

Do you have any supply chain tricks to ride out this volatility?

No, the rabbit in the hat is dead. There are no tricks.

We saw this coming in August and started to broaden who we were buying from. That has probably saved us from stopping production on any of our lines. We’ve had a lot of stressful days in our department, and we are not near done with them. In fact, I am not sure we are to the peak of them. We have had to think creatively and stay on top of it.

Do you have the employees you need?

We would hire another 100 people today if we could. The labor situation is horrendous. In fact, when I’m talking to suppliers, I don’t hear COVID so much as I hear labor shortage.

Steve Sukup, President and CEO, Sukup Manufacturing

What is most on your mind?

What are you seeing in the supply chain?

Last year, we were concerned when the lockdowns started, but if suppliers said it was coming, it arrived. Since February, delays have become a bigger problem.

We’ve gotten letters from suppliers that say “If we haven’t shipped your order within the next 10 days, we will be instituting a surcharge, even if you have it on order.” They are paying new prices, and even when they say we are going to increase in 10 days, they don’t know by how much.

The Section 232 on steel tariffs is hurting us. We have always bought U.S.-made steel, but when the tariffs happened, U.S. companies raised their steel prices. This is the most extreme I have seen.  Back in 2006, we saw that steel mills started to run out of their supplies. The difference this time is that they are not running out of supplies, they are restricting capacity. They’ve decided to produce less to sustain the pricing.

We are managing inventories. At the end of the season, we don’t want to get caught with expensive inventories, either. We need to balance what we are bringing in with what we manufacture and sell, and we need to do that in a way that we can sell it to our customers for a fair price while we get a fair price for it. That is something the team has to manage, and we have a handle on that.

Is the labor problem at Sukup the same as it is in most places?

Yes. If we could hire 70 people, we would put them in place today. We have some frustrated customers out there, because they are used to getting what they want on time. We are focused on putting the right people in the right places to keep things moving.

Kenny Kuhns, owner, Kuhns Manufacturing

What is most on your mind?

That is an extraordinary increase in labor. How did you do that?

We do not have an issue with people, which I know is rare in this time. We have a good labor force and good reputation in the community as an employer.

What are your strategies for navigating supply chain?

There’s no strategy, really. This is a time when loyalty to vendors has been valuable. Someone who had six vendors for one part may also have had some advantages.

We have learned we have to communicate with vendors much more frequently than we did in the past. They are losing people because of the stress, and so their tribal knowledge is diminished. Our regular reliance on software to trigger purchase orders does not work anymore.

We have had disruptions for sure, but it has not been horrible.

It has certainly challenged our use of lean principles. We have done the whole lean experience—we have kept a low inventory and lined up our suppliers to bring things just in time. Obviously, that’s not working right now. With steel, we used to keep a low inventory, and we actually probably have six to eight times as much steel in house as we usually do. Your losses with no inventory are much higher than your cost of high inventory, so this is the way to do it, but how is it going to look as the market comes back into balance?

What’s your take on the state of the industry?

Well, commodity prices are going to drive much of what happens next. We’re all watching that. In agriculture, we have had such a contraction these past years that it created a vacuum. That led us to this market and questions about inflation: How much I can bear, and how much can my customers bear?

The problem with shipping containers coming to the United States empty is complex, too.  I would love to see us bring more manufacturing to the United States, but we have a labor problem that limits that. Suppliers do not see it happening.

Maybe we have been caught flat-footed as manufacturers. Maybe we needed more automation. Even with automation though, you need people, of course. Maybe the work opportunities become better with automation.

What are we going to learn through this season? It is a season, we will correct it, but how are we going to come out different and better?

Todd Lassanske, General Manager, McFarlane Manufacturing

What’s your biggest challenge?

Our workforce was fairly stable throughout the pandemic. When orders started picking up, we put together a plan to add people. It is plus one, minus two, plus one … When people can make more money sitting at home, it’s tough.

Any lessons learned on how to find and retain employees?

The labor challenge isn’t new for any of us, but the pandemic certainly escalated it. You can’t just flip a switch and solve the problem; you have to build a culture. I’d love to say we have it all figured out, but we are working on it. It is a collective cultural effort with–and for–a great team.

We have done a lot of things to recruit good people while also taking care of our current team. The challenges our existing workforce is up against are real. We are typically busy in the spring and fall, and usually get a break in the summer. Unfortunately, we are asking a lot more of our team members this summer, and I am concerned about their well-being, burnout and related fallout.

We have used sign-on bonuses, introduced higher wages, and promoted our referral bonus. Our most creative strategy has been to offer a flexible schedule. We asked our team members what hours they wanted to work. They told us, and we held them to that.

They picked their 40 hours between 5 a.m. and 4:30 p.m. Monday through Friday.

As our orders have increased, we have gone back to them and said, “How would you orchestrate a 50-hour week, and can we introduce those hours?” 

As a result, we are adjusting schedules as preferred by our team. It hasn’t solved all of our labor problems, but we’re being transparent with the challenges we face, and it keeps our whole team engaged in finding solutions.

We have also had a promising response from a youth apprentice (YA) program. Numerous team members this summer are high school youth apprentices or college interns.

The YA program is supported by the (Wisconsin) government and operates through school partnerships. It allows a 16-year-old to come in and operate everything outside of a crane or forklift. They contribute significantly as they weld, assemble, and operate smaller equipment.  Since implementing the YA program, a majority of youth apprentices have become regular team members following graduation.

Three of our apprentices are graduating this summer, and we’re offering to pay for their next level of education. Two are welders going through an associate’s program. One is in construction management, which is a four-year program, and we are paying not quite half of those tuition costs.

How have you avoided some of the bigger headaches in the supply chain?

Relationships are key. We have had a few potential hiccups and continue to be proactive by working closely with our suppliers. We secured a significant percent of our steel inventory six months ago. Our steel supplier agreed to sell to us at our current price and hold it for us. 

Because of our vertical orientation, most of everything we do–outside of hydraulics, wheels, and ground engaging components–we do here. We are in control of our own destiny that way.

We are getting pinched in the middle as our material prices continue to escalate, and our wages are escalating, we are not finding it reasonable to pass along those costs. We are trying to protect our customers as much as we can. They are facing their own levels of uncertainty and challenges.