As companies have strained to navigate the supply chain volatility of the past three years, one area has emerged as an often unseen pain point — manufacturing equipment part constraints.
Manufacturers across industries have struggled to find replacements for parts when equipment breaks or grows outdated. The issue has led to an influx of demand in refurbished equipment parts as an alternative source of supply.
EU Automation is one company working to service this market. The seller of automation and control equipment specializes in refurbished parts and has seen a surge in customer demand in the last couple of years, according to General Manager Neil Ballinger. The company's U.S. office is based in Chicago, with the country making up roughly a third of its business.
Supply Chain Dive spoke with Ballinger to discuss how EU Automation has navigated its own supply chain constraints in the past several years, and how it's seen the manufacturing equipment market change since the onset of the pandemic.
SUPPLY CHAIN DIVE: What are some of the top supply chain challenges that you've seen as a manufacturing supplier?
NEIL BALLINGER: We're facing the same kind of obstacles as the customers — really long lead times, high prices on low availability stock around the world. The advantage that we've got, the way we set the company up, is that we are kind of a middle man. We don't make anything ourselves, so we rely on what our supply chain has to offer. But that supply chain is 13 years established.
We work with really small, ma and pa types of companies up to huge OEM distributors and the OEMs themselves. We rely heavily on these relationships that we have with [our] supply chain. Really, everything we did over the past 10 years has led up to this point where we were really perfectly positioned to delve into this vast supply chain and use every single corner of it to get the kit out to the end users that needed it.
The world's a big place and there's a lot of [equipment] kits waiting to be purchased out there. You don't just have to sit and wait for the OEMs to manufacture it.
How did you navigate challenges specific to the refurbished equipment supply chain?
We know a lot of repairers, we know the kind of parts that the customers want to get reconditioned units for. It's the parts that typically break down and leave them really in trouble when they do. We were really well established to deal with this increased demand for spare parts in general.
The second the pandemic was kind of over, that's when we started getting hit with loads and loads of inquiries for new equipment. And we were able to kind of flip that around and say well there's not much new equipment around at the moment, but we have loads of reconditioned equipment for you to choose from.
It was an easy sell really. And we were saying that to a lot of our regular customers who already knew us for reconditioned parts and wanted more. And then we were talking to some of our existing customers who would use us for new, current line parts and then they started to use us for reconditioned parts.
And then we had the brand new customers who never dreamed of going outside their supply chain, but needs meant they had to go out into the world and find their parts. We created a lot of noise around that and we had a queue at the door to find the spares.
What is the price differential that you are able to offer customers versus new equipment?
Under normal circumstances, pre-2020, price could be used as an attractive thing to get a customer to get involved with us. Typically we talk about list prices as a new unit, and a reconditioned unit would fall well under that price, anything up to 30-40%.
Post-2020, it's a completely different ballgame. Pricing structures have gone out the window, depending on what you can buy [the part] for on the day, or whether you've got one in stock or whether you have to go get it reconditioned and get it ready. Prices can be literally through the roof, not from a profiteering point of view, from pure supply and demand.
Where we'd love to say we'll give you savings if you buy reconditioned, a customer could now be paying triple the price for a reconditioned unit because it's literally the last one on the planet. We've had to pay that just to get it through the door. It's all relative at the moment.
When it comes to new kits, list prices have gone out the window for the moment. It's pure supply and demand. Buying high and selling high is usually the case at the moment.
What have been some of the key strategies you've used to find the parts you need and get them to customers?
It's back to relationship building, and staying close to the customers and staying close to the supplier. Really getting to know what the customers are wanting, whether it really is urgent. There's different meanings of urgent: There can be urgent today, urgent in a week, urgent in a month.
But the better we understand their demands, the better we can use our own stock to fulfill their demand or go out and find new suppliers that we've never dealt with before, or get a better deal with suppliers that we've known for a long time.
What's the current state of that supply chain? Have things normalized?
No, we're still in a pretty hot market. The OEMs are still far from normality; 40-week lead times, 50-week lead times are still talked about quite regularly. We're just bolstering everywhere we can, getting these better deals from our existing suppliers, and we've seen customers change their tactics.
Someone who was perhaps reliant on a new Siemens kit for instance, they're finding new ways in the market. They're having to switch to different brands that they've never used in the past but that are compatible with the systems they're using now.
So to know that from a customer is a really important thing to start with. Then to go out and use a supplier that would perhaps be considered a peripheral supplier but is actually becoming an up and coming supplier at the moment because they can offer a different way around the problem.
Do you anticipate lead times dropping this year?
I think in terms of the way we want to handle the reconditioned kit that exists, it's already manufactured, I can only see that getting quicker as we get more efficient with the way we handle customers' requests and the way we deal with suppliers.
That's something we're putting a lot of effort into right now to gain efficiency, if we can gain an extra day by using a different courier or if we can get a supplier to make sure they reference their parts properly when they come through the door so we can get them out quicker.
Do I see an influx of reconditioned parts on the market? It's hard to say at this point. Probably not, but I think it's more about how any company like us handles their day-to-day business, and that's probably where we're going to see the sustained growth.