Uncertainty & Supply Constraints Cloud Annual Ordering Cycle
In a typical year, the autumn is when the annual ordering cycle usually kicks into high gear as fleet operators flesh out their budget and operating strategy for the year ahead. However, this year, we’re all in uncharted waters.
The 2021 model year was among the most unprecedented in recent memory given the litany of OEM-related production challenges and supply constraints. Unfortunately, as the automotive industry as a whole continues to deal with the lingering effects of the pandemic and the resulting supply chain disruptions, it appears as though the entire fleet sector will be navigating these challenges for the foreseeable future.
With that in mind, it is even more critical that you be proactive in your acquisition planning and budget allocation; in all likelihood, it is going to take much longer to source vehicles, and they’ll cost significantly more across nearly every segment of the industry. To help you craft a comprehensive acquisition strategy for the 2022 model year and beyond, here are a few key factors to consider.
Perhaps this year more than ever before, you’ll want to examine your overall fleet and cycling strategy from a holistic standpoint. Ask yourself: How will my fleet operations be impacted throughout the entire lifecycle – buy, drive, service, and sell – by limited vehicle availability?
You’ll want to develop a holistic strategy that addresses various scenarios that may arise throughout the vehicle’s lifecycle to mitigate challenges with units that will likely remain in service longer that originally anticipated. This comprehensive view of your fleet will also help you identify which units should be prioritized for replacement and which may be best suited to stay on the road a bit longer, given the limited number of vehicles likely to be available.
Expect – and plan accordingly for – significantly longer lead times for certain models. As a result of part shortages and manufacturing delays, we’re already seeing order-to-delivery times of more than 52 weeks for some popular models. Also, for units that require upfitting, there may be additional delays because of the limited availability of certain components and production backlogs due to facility closures during the height of the pandemic.
With limited vehicle availability, flexibility and quick decisions will be vital. For some fleet operators, it may be beneficial to simplify vehicle specs to increase the number of units available across various manufacturers. While traditionally you may consolidate your orders with a small number of manufacturers, given the unprecedented demand, you may benefit from embracing multiple OEMs to maximize your options and minimize the impact of potential unforeseen delays.
When it comes to upfitting, most fleet operators will be best served to streamline specifications, creating more simplicity and consistency in vehicle design to mitigate supply chain risks and allow vehicles to move through the upfit process more quickly.
You’ll also want to be well prepared to make acquisition decisions as quickly as possible. The market will have limited inventory for the foreseeable future so when vehicles are available, decisions should be made immediately or, when possible, pre-approved, allowing you to not waste any valuable time.
The effects of the ongoing supply constraints aren’t just limited to the fleet industry; consumers are also feeling the impact. Most dealerships across the country are struggling with record low inventory and this is hampering stock purchase availability. You should expect fulfillment of immediate/emergency vehicle orders to be very difficult and extremely costly. Additionally, standard preferred purchase agreements will likely carry little to no value for high-demand units.
While it is always beneficial to plan ahead to avoid stock purchase scenarios, current supply constraints make long-term planning much more critical.
Unfortunately, order cancellations will likely be unavoidable and may occur weeks, or even months, after orders are submitted. You should have comprehensive contingency plans in place to minimize the impact on your business.
This continues to be a particular area of focus for ARI’s team of supply chain experts. We’re maintaining an ongoing dialogue with our partners throughout the supply chain to ensure we stay on top of looming disruptions to help our customers proactively adjust their acquisition strategy as needed.
As you can see, the lingering effects of the pandemic continue to severely disrupt the entire supply chain and the entire industry will be navigating these issues well into 2022, and likely beyond. To overcome these short- and long-term challenges, you may need to get creative, adapting your traditional budgeting and ordering strategy to account for extended volatility.
But perhaps most importantly, remember, we’re here to help you determine the true impact to your overall business and operating budget, factoring in variables such as increased downtime, higher maintenance costs, and inability to capitalize on the exceptionally strong resale market to develop a holistic acquisition strategy to keep your business moving forward.
Learn more about effectively managing the supply chain to avoid silofication with this video. To stay up-to-date on the latest manufacturing news and delays, be sure to subscribe to the Morning Brake newsletter.