Finding growth opportunities despite supply chain constraints

Consumer demand in the U.S. is high right now, and production is rising right along with it. By all accounts, this is excellent news, especially for manufacturers whose work slowed during the height of the pandemic. But for business leaders, well, it’s complicated. While a high-demand market can lead to rapid growth and profits, it is incredibly challenging to capitalize on it amidst rising material costs, labor shortages, and global supply chain disruptions.

“Manufacturers want to take advantage of today’s strong demand by expanding their facilities and automating processes, but right now, they struggle to hire people or procure equipment to accomplish this,” explains Mike DiCecco, Executive Managing Director of Asset Finance at Huntington.

Supply chain challenges are largely to blame for the difficulty in purchasing equipment and materials, which are predicted now to continue through 2023 and beyond, DiCecco says. This disruption won’t be solved anytime soon, so instead, businesses could explore other ways to grow despite the circumstances.

Extend the life of equipment

When global supply chain delays make it impossible to replace new vehicles, machinery, or other equipment, finding existing assets to keep the business running is the next best option. “In some cases where businesses would normally buy new, now they’re turning to used markets for equipment,” says DiCecco.

Relying on used equipment is a helpful stopgap for companies as they wait out elevated prices and shipping delays. However, this surge in demand for used equipment has made it difficult for businesses supplying it to keep enough in stock.

“They have trouble getting the inventory too, and the prices are going up,” DiCecco says. “You could easily see a 25% to 35% price increase from the bottlenecks in the supply chain. We’ve seen equipment prices go up 75% from where they were pre-pandemic.”

Leasing equipment is another possibility, but businesses offering equipment for lease face the same inventory issues as used equipment dealers. When used or leased equipment isn’t easy to find, the next place for businesses to turn is inward to their existing inventory. Leveraging pre-existing equipment into its final, high-maintenance years might not be ideal, but it can be a helpful short-term solution to keep up with this high-demand environment.

Find creative solutions to deal with supply chain hold-ups

The drive to capitalize on today’s strong demand has led to other unique solutions. For example, instead of stalling production due to a single missing part, some manufacturers are sending off nearly complete products.

“They’re shipping 98% complete items,” explains DiCecco. “The remaining components that aren’t available now because of the disruption will be installed by dealers right before delivery to the customer.”

Companies facing a sizable backlog held up by minor components could consider this alternative. Filling a warehouse with items requiring some assembly is often better than being entirely unable to meet demands.

Other businesses unable to combat supply chain constraints directly are shifting their focus toward technology and digital business initiatives.

“People are making significant investments in the digital experience,” DiCecco says. “If they can’t get the equipment or labor they need, they’re turning toward their technology platforms to improve the customer experience and eliminate jobs they’re struggling to fill.”

As more companies join in this practice, warehouse operations and logistics could see a digital transformation in the next few years. Companies investing in digital experiences now might gain a competitive edge in the years to come.

Boost operational and cost efficiencies

Weathering the supply chain disruption storm requires businesses to optimize internal operations as well. If your business is struggling with heightened prices and shipping delays, it can be helpful to focus on lowering costs internally.

“Now’s the time to look at your overall operating efficiency and determine whether there is anything you haven’t considered,” says DiCecco. “For example, we’re in a rising rate environment. Have you thought about financing your pool of assets with a fixed rate rather than a variable rate? How are you financing existing equipment as well as new? These are the questions businesses should be asking themselves.”

Other considerations, such as commodity hedging, improving balance sheets, and saving on taxes, can all ease financial concerns, including those due to changing workforce demands.

“You might not think of it as a solution to labor inflation,” says DiCecco. “But if you’re saving costs in other places within the business through commodity or debt hedging, it takes the pressure off of paying higher labor costs.”

Rely on short-term solutions for long-term gains

As projections for global supply chain issues reach beyond 2025 in some cases, there is growing speculation about the potential of U.S. manufacturers investing domestically rather than relying on offshore production.

“It’s a long-term solution to less dependence on foreign supply chains,” says DiCecco. “There will be a fundamental shift in how industries view their reliance on foreign production. It might not fix the issues now, but it will be positive for us in the long term.”

Optimizing operations and investing in technology to meet future demands and challenges can protect businesses now and help them thrive in the future. While the supply chain outlook for the next few years seems grim, there is hope. Business is strong, and demand is high, DiCecco says. Companies can still meet that demand by leveraging pre-existing equipment and finding other creative solutions around disruption.

For more information on growth strategies for your business, contact your Huntington relationship manager.