12 Jul Inflation in 2021. Click to keep reading…
Rising Inflation is creating a difficult environment for many job shops. As the economy continues to reopen after the long shutdown, signs of inflation are everywhere – from gas prices rising from $2 to $3, to soaring housing prices based on low interest rates and lack of inventory. All industries are struggling to manage the price increases in both labor and materials.
For a lot of manufacturing job shops, the labor market was extremely tight before the pandemic. It was very difficult to find fledgling machinists, molding equipment operators, assembly operations personnel, or people to work in shipping and receiving. With many people opting for unemployment insurance versus working, it’s even more difficult to find people to fill open positions. Many small businesses feel like they are competing with the Federal government to employ qualified workers. This is a challenging situation for an employer who may have to pay more to attract a new employee. In some cases, a situation was set up where a person that has continued to work could be making less than someone who chose not to. Many companies are seeing people who are showing up for interviews just to satisfy the unemployment office requirement. A lot of states are starting to take notice, and are ending the extra unemployment to encourage people to go back to work. The restaurant /hospitality business has been hardest hit by the pandemic and is also really struggling with this problem.
On the material side, the shortages are everywhere. Everything from chip shortages causing lead-times to go out to 50+ weeks, to raw material shortages from steel to copper causing spikes in price. On the plastic resin side it has been extremely difficult. The spike in oil prices led to a lot of the manufacturer’s having to switch lines to support the focus being on PPE and other COVID-19 safety products. The shutdown caused by the deep freeze in Texas also added significantly to the problem. Some material suppliers are not committing to material pricing until the order has shipped. This puts the manufacturer in a very tough spot of not knowing what the price is going to be on a customer’s purchase order. On top of all the plastic increases, these manufacturers are also seeing all of the corrugated packaging materials and wood pallet pricing increase as well.
After the shut down of the world’s economy, the reopening is proving to be tricky. Hopefully, some of the hiccups will be ironed out by the end of the year. No matter where you are in the supply chain, nobody likes to continue to tell customers their price is going up while lead-times are going out. Commentary provided by Chris Dunham.
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