How Manufacturers Can Navigate through the Steel Shortage

The steel shortage is affecting manufacturers in almost every industry. Both domestic and international steel mills have been unable to catch up with the demand for steel, resulting in the highest steel prices seen in at least 13 years.

“The steel and material shortage has created a two-fold challenge for manufacturers,” says Ludlow Manufacturing CEO Todd Ludlow. “Material is increasingly hard to obtain, especially common grades of steel. In addition, it’s also triple the price from a year ago.”

Fortunately, manufacturers can overcome the steel shortage of 2021 by utilizing three key strategies.

Causes of the 2021 Steel Shortage

The steel shortage is driven by sharp imbalance in supply and demand, directly caused by the pandemic. In the early days of the pandemic, many companies and steel mills shut down. The result was a dramatic decrease in the production and need for steel. When manufacturing production rebounded, it boomed and the need for steel skyrocketed. In addition, a shortage in shipping containers, drivers, and other logistical challenges have caused delays in material delivery and drove up the price.

Steel Shortage Strategies Manufacturers Should Employ

FORECASTING

One of the most important ways manufacturers can maintain production schedules is to extend their forecasts as far into the future as possible. Optimally, manufacturers should forecast at least 3-6 months into the future.

An advanced forecast allows manufacturers, and their suppliers, to prepare and place orders for materials well in advance. This strategy also allows for logistical delays.

COMMUNICATION

Advanced forecasting is only one element of dealing with the steel shortage. For OEM manufacturers in particular, another key strategy is frequent communication with suppliers and fabricators about changes in production schedules and other key production information. These conversations can also include utilizing alternate materials when the specified material is hard to find, such as a different grade of material that still works with the design of the product.

This strategy is one that Ludlow Manufacturing is very familiar with.

“Transparency and close communication are the core of our strategy for dealing with the challenges of the material shortage,” says Ludlow Manufacturing CEO Todd Ludlow. “At Ludlow Manufacturing, we are constantly having open and honest conversations with our customers regarding price and deadline challenges.”

DYNAMIC PLANNING

The current situation dictates flexibility. Manufacturers need to constantly adjust their production schedules with material availability. This strategy also could include “over purchasing” material.

Basically, this strategy includes purchasing more material than needed so it is available for future projects. This approach can also be used with scrap material, which can be stored and used for other projects when needed. If the material is not needed, it can also be sold to other manufacturers at the price paid or for a profit.  

Future Steel Shortage Projections

Fortunately, the steel and material shortage are not expected to last forever. Most experts expect mill production and commercial demand to balance, ending the material shortage and high price. Until then, manufacturers can employ multiple strategies to maintain production schedules and meet customer demand.