For many buyers 'effective leadtimes' are what matter
By Staff -- Purchasing, 2/12/1998
The way purchasing professionals regard leadtimes appears to be in a period of rapid change, according to Purchasing Magazine's latest grass roots report of purchasing conditions. Traditional leadtimes ("the time producers say it takes to fill an order") are being augmented with "effective" or negotiated leadtimes. These are considerably shorter than traditional leadtimes, and add a new dimension to how buyers regard leadtimes in their planning.In effect, this shift is a reflection of how purchasing executives are operating in many product areas. Instead of going directly to primary producers for production supplies, sizable numbers of buyers are turning to distributors and service centers for these goods. In most cases they end up reducing leadtimes and inventory costs. As buyers explain this move to our field editors it's a reflection of their confidence in distributors and service centers to take costs out of distribution channels and also provide "attractive unit pricing."
Bill Frye, purchasing agent at Esmet Inc. in Canton, Ohio, cites a typical example in the fastener industry. He notes that his fastener leadtimes have been "next day for at least two years." He has achieved short leadtimes by using service centers for his fastener supplies. Other buyers report similar moves in metals, electrical and electronic components, bearings, and chemicals.
Here are the other changes in buying conditions as reported by Purchasing's grass roots field editors around the country:
* Prices. Buyers speak in terms of "balancing out" the prices they're paying. What this seems to mean is that many prices in many category areas are bobbing along somewhere between flat and up slightly. While demand remains strong, capacity is building, and producer costs are generally under control. Many buyers polled report a great deal of price action and not much real change. Many, for instance, tell of product lines that have experienced three or more price increases over the past year and are still only marginally higher than they were a year ago. Product categories with the most upward activity include aluminum and packaging. Listed as flat or near flat are motors, pumps, small engines, transistors, and plastic components. Heading downward: steel structurals and flat products, some common plastic resins, compressors, electrical components, metal mechanical parts, and electronic chips.
* Inventories. Despite strong business, most buyers report that they are working with historically low inventories. For many firms, shorter leadtimes (see above) are resulting in lower inventories at buyers' companies.
* Outsourcing. Tightness of the labor market appears to have sent more purchasing executives into the market for custom manufacturers and/or distributors selling value-added services. Many buyers report unusually good success in outsourcing. Some also are setting up long-term contracts for such services as lawn care, trash collection, printing, building maintenance, janitorial services, and computer systems servicing.
* Quality. There have been scattered reports of increases in quality problems. Worst problems seem to be cropping up in the metalworking industries. In many cases the problems are being blamed on labor shortages. The purchasing agent for a packaging machinery maker in Chicago, for instance, reports having to drop several suppliers "because they ran into trouble getting good labor."
* Delivery. A rise in order-filling problems also is being blamed on "inexperienced labor doing order fulfillment." As a result, this month's roundup finds an increase in reports of problems involving badly addressed shipments, delayed shipments, and billing irregularities.
* Imports. Offshore buying appears to be on the increase. Main reason: cheaper prices. However, a substantial number of purchasing managers insist that they are doing more offshore sourcing in anticipation of greater involvement by their companies in international buying and selling.
Here's a region-by-region view from buyers across the country:
* East Coast. Substantial increases in corrugated prices still being reported in the area. Several buyers estimate that corrugated prices rose more than 24% in the past year. Recent increases on polyethylene. Leadtimes are stretching out on some stainless items, large sand castings, a few steel structural items. Spot shortages of truckload carrier services.
* Mid-Atlantic. Recent price increases reported on forgings (4%-6%), nylon 11 (8%-12%), corrugated (8%-12%). Talk of more increases on steel bars (3%-5%), forgings (another 4%-5%), polyurethane (3%-5%). Lower prices on some fasteners (1%-2%) and PCs (5%-10%). Longer leadtimes reported on sand castings (to 6 weeks from 4 weeks) and PCs (to 2-3 weeks from 2 weeks). Quality problems on large diameter (over 2 inches) round bars.
* Midwest. Delivery and quality problems appear to be on the increase in many parts of the Midwest. Castings, forgings, machined parts lead the list. Considerable stretching on fiber glass leadtimes (from 3-4 days to 4 weeks). Leadtimes on aluminum castings are out to 8 weeks (from 6-8 weeks). Shorter leadtimes reported on sheet metal parts (to 2-3 weeks from 3-4 weeks). Recent price hikes on fiber glass (2%, polypropylene resin (2%), corrugated (5%-9%), polycarbonate (6%), motors (1%), drives (1.5%), some bearings 1%-2%).
* South. Demand for steel pipe is up in the oil patch and is now affecting leadtimes for gas line pipe because manufacturers are shifting production over from line pipe to seamless pipe and other oil country piping. Leadtimes for line pipe are out to four months and are likely to stay that way. Polyethylene pipe also has gotten tighter over the past few months with leadtimes moving out around two weeks. Pine oil leadtimes continue to be stretched (4-6 weeks). Ditto for isopropyl alcohol (IPA), and caustic soda. Talk of another round of increases on caustic ($30/ton).
* Southwest. Prices on a number of specialty steel structural items--especially channels and angles (5%-10%). Also higher prices on some electromechanical devices (1%-2%). Leadtime drops on copper tubing (from 18 weeks to 10-12 weeks) and brass castings (4 weeks from 4-6 weeks). Longer leadtimes on gray iron castings (8 weeks from 4-6 weeks).
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