Posted on June 27, 2019

Fragmentation's Effect on Supply Chains

Ally Pulskamp
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Ally Pulskamp

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Fragmentation

Industry Fragmentation Experienced by Procurement Departments in Materials Planning

Because of the growing global market for construction equipment, the function of equipment manufacturing procurement management is undergoing enormous changes in an effort to streamline electronic communications, control costs, improve quality of materials and ensure required organizationalAdobeStock_44834991 return on investment. Procurement managers have so many “balls in the air” it is becoming increasingly difficult to manage the front end of complex construction equipment production. The pressures of ensuring on time receipt of materials, profitability, quality and value for the supply chain and especially their own company can be daunting. When all of these are happening concurrently, the process to manage them requires sophisticated practices and procedures.


A recent report by the Institute of Supply Management (ISM) stated there is “strong growth in manufacturing . . . led by strong production output, continued strength in new orders, improvements in supply chain delivery performance and better utilization of existing inventory accounts.” The report
affirmed that an industry indicator of above 50 percent suggests that the manufacturing economy is expanding. An indicator below 50 percent suggests the market is typically constricting. The report further states that the machinery sector, which includes construction equipment, is among the industries reporting growth in new orders, production and employment. This is good news for the construction equipment industry, yet challenging news for those who manage the supply chain.

One of the main challenges is that though demand remains strong, the Inventories Index is low, ultimately causing the Backlog of Orders Index to expand. As market consumption continues to improve, indicated by the expansion of the demand in production and employment, there are still shortages in labor and materials. This type of market condition can cause inefficiencies and fragmentation in the supply chain due to pressures of increased inventory consumption. Though a slight expansion of Chinese imports has helped support production output at some levels in the U.S. and European markets, the increase in lead-times, issues with quality, the disruption in steel and aluminum supply, some localized labor issues and transportation problems are often road blocks for OEM equipment manufacturers. However, in many cases domestic and European parts and component supply has shored up these deficiencies due to the reliability of parts quality and limited or no issues with tariffs and improvements in on time deliveries.

 

This blog is an excerpt from our latest whitepaper, Fragmentation in Construction Equipment Parts Procurement. Click here or on the link below to download your free whitepaper! 

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