What's The Biggest Supply Chain Headache Crippling Equipment Manufacturers Right Now?

Supply chain challenges consistently hit agriculture in 2022.  While 2023 has brought improvement with fertilizer availability, a sector still fragile to supply chain issues is the farm equipment sector.

From tires and tracks, to a new problem with castings, leading equipment manufacturers like Case IH, John Deere and Great Plains all say the supply chain is still an issue. 

“We're conditioned to expect the black swans to the point where they're no longer black swans, they're just kind of inevitable disruptions,” says Sam Taylor, farm inputs analyst for Rabo AgriFinance, RaboResearch.

“The supply chain challenges that we experienced in 2021 and 2022 are with us for a little bit longer,” says Curt Blades, senior vice president of agriculture services for the Association of Equipment Manufacturers (AEM).

Supply Chain Issues Projected Through 2023

During National Farm Machinery Show (NFMS) last week, booth after booth displayed the latest in technology and equipment, but leaders within the ag equipment sector say the supply chain issues are a hurdle in bringing new products to market.

“Absolutely, it's been an issue. Supply chains have been highly disruptive in the last 12, 18 to 24 months,” says Jahmy Hindman, Deere and Company chief technology officer (CTO).

Hindman says in the constant conversations Deere is having with their supply chain base, suppliers are telling them the situation looks to improve the second half of the year.

“It's progressively getting better,” Hindman adds. “Our third quarter and fourth quarter of last year showed us the improvement in our ability to deliver the products that are being ordered to the marketplace. I expect that to continue in the first quarter of this fiscal year for us.”

AEM also sees improvement coming later this year, which means farmers could still face months of supply chain constraints.

“Maybe by the end of the year, we'll begin to see some return to normalcy, whatever normalcy looks like,” says Blades.

Parts In Shortest Supply 

Today, equipment manufacturers across the world are grappling with the same problem. The supply chain issues are not only ongoing, but hard to predict.

“We had this level of challenge, maybe now it's a little bit less, but we're not out of the woods,” says Kurt Coffey, head of Case IH for North America. “It could be tracks one day, it could be tires the next day. We have a lot of very unique, high-value, custom castings, a heat-treated custom casting, that you can't just go get, and it's a very unique supplier.”

Castings are the latest supply chain headwind to hit. No matter the type of equipment, manufacturers are saying castings are a major hurdle right now.

“It's a little bit of a whack-a-mole strategy when it comes to the supply chain,” says James Shurts, president of the ag division for Great Plains. “It's always something new, and it just happens to be that castings are our current issue and the current challenges. But it's always something different.”

AEM recently conducted a survey of its members, showing:

• The most sought-after component are tracks (and their included components):
• Only 27% of optimal inventory is available.
• In both agriculture and construction sectors, semiconductors and chips are in short supply.
• 44% optimal inventory is available across both sectors.
   

“The other things that are interesting are like wiring harnesses, which oftentimes are made in the Ukraine, or seat cushions, which are made in Texas in areas that were destroyed by floods. It's not one thing, it's a collection of things,” says Blades.

Case IH says as the parts in short supply continue to vary, the company is finding unconventional ways to address the issues.

“The last year or two has been custom castings, chips, tracks, tires,” says Coffey. “We actually pulled strategic sourcing in and went on third-party markets to go buy chips from third parties, millions of dollars of chips from a third party, bring them in, ship them to our partner suppliers so we can keep our lines going.”

The Biggest Issue? Labor 

No matter what item is in scarce supply, the problem is bigger than one part or company.

“The underlying issue with all supply chain challenges are labor,” says Blades.

AEM also surveyed 179 equipment manufacturer executives about the supply chain late last year and found:

• 98% still face supply chain issues.
• 58% are experiencing continuously worsening supply-chain conditions.
   

The AEM survey showed equipment manufacturers of all size are getting creative to address the challenges, which includes increasing their inventory and supplier base, creating a more vertical integration of supply chains, certifying alternative suppliers, as well as focusing more on supply chain reliability than price.

Growing Optimism

Despite the constant supply chain obstacles, leaders at both John Deere and Case IH are optimistic.

“We're not just hearing that it's progressively getting better, we're sensing it; we're feeling it,” says Hindman. “We're also seeing it come through in our delivery. So, as long as things continue on that trajectory, I feel pretty good about next year.”

“We're not out of the woods, but we're certainly in a better place than where we were, let's say, a year, year and a half ago,” adds Coffey. “But we're just going to keep fighting to make sure that we're ready for whatever the customers need from us.”

Optimism is growing in the supply chain, even with some bumps still ahead, as agricultural equipment manufacturers continue to navigate uncharted waters with the supply chain.

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