In our most recent Fridays with Frank video, we discussed the supply chain. That was not the first time. After watching it several times, I was not happy with what we provided. Backorders are a subject that is not going away. Dealers need a better answer, and we will do all that we can to provide it.
Last week we received a call from a Konica Minolta dealer asking us to continue exploring the backorder problem. This dealer is carrying over $8 million in backorders into 2022. That is not easy to deal with. If you saw our supply chain discussion, you got the message—it will take time, but it will get done. The critical question is not if but when?
The dealer reaching out to us motivated us to contact Patrick Banno, CEO, and Sam Errigo, COO of Konica Minolta to help define the issues. We set a date and got it done. Allow me to state that this problem is not unique to Konica Minolta. That said, let’s move on. Patrick and Sam were forthright and unambiguous, and we appreciated their candor.
Sam kicked it off by saying inbound port congestion was number one on his list. The reason was simple. The port congestion has been compounded by shipments of Christmas goods. In other words, more ships are waiting to unload. Once we are past the holiday season, congestion should be somewhat lessened.
Adding more pressure to the situation is a shortage of ground transportation–both truck, and rail. Making it even more difficult, Amazon and Walmart are buying up the available trucking and rail distribution.
Konica Minolta is looking at this situation as a giant puzzle. They define the three main issues as COVID-19, chips, and shipping. Their prediction was blunt, “It is not going to take 30 days to solve this problem; it is going to take many months.”
The chip issue is real as Konica Minolta is being asked to satisfy an astronomical order rate. “The office market is very strong,” said Sam. “Our task is to get the product on the water.”
That may sound simple, but it is not. Konica Minolta’s discussions with chip manufacturers gave them a better understanding of the challenges those manufacturers are facing. They would like nothing better than to expand their manufacturing capabilities to meet the unprecedented demand. The chip producers are expanding and the cost of doing that is very expensive. Patrick indicated that one chip manufacturer claimed it would cost at least $10 million for a limited increase, and could reach many times that number to satisfy demand. Even if the money becomes available tomorrow, it will take time to build the necessary infrastructure to produce more chips.
There is no change in the lack of chips for manufacturers of all kinds of goods, not just MFPs. Patrick was emphatic the problem can not be solved in less than a year. To resolve some of these issues, Konica Minolta has a very senior executive (meaning he possesses a great deal of authority) that was sent from Japan to do everything possible to expedite the process. Patrick indicated that this executive has made some improvements.
Patrick and Sam were anxious to convey to their channel partners that Konica Minolta is doing everything possible to address the problems that are in their control. COVID-19 is a global problem that must be addressed by the advanced countries of the world. In our opinion, it is a major contributor to the situation with the broken supply chain as the poorer nations do not have enough vaccines to inoculate their people. This is not altruism. The raw materials to produce the necessary hardware come from many of these countries.
As you can see, Konica Minolta is painting a bleak short-term picture. Once we are past the holidays, some of the pressure will be reduced. There should be some improvement on the shipping side.
Chips will continue to be the second problem that will take time to fix. The pent-up demand is adding to this difficulty. Dealer sales are very strong, and Errigo indicated that he believed that would continue to be the case in 2022.
Manufacturers cannot give a definitive answer to the backorder situation. This is due to the unpredictable nature of the three major challenges. The resolution must be to clear up the backlog at the ports. Patrick and Sam stated they are looking at possible alternative landing locations in North America. That could add to the time for the ships to reach different ports and increase the time to transship the machines, parts, and supplies to distribution points all over the United States. Also, to be considered are the facilities necessary to unload container vessels that are in short supply.
All in all, Patrick and Sam shared with us the truth of the matter with no sugar coating. We hoped that by mid-year we can see the beginning of the end of this nightmare. That may well be unrealistic. We understand that nothing can be more frustrating than having great sales success only to find out that orders cannot be filled.
We don’t have an answer! What we are doing is taking Fridays with Frank on the road. The hope is to find some answers. The first on-the-road Fridays with Frank segments will take place at the EFI Connect conference in Las Vegas on January 17-20. At this event, we will have some very senior executives who manufacture hardware and provide the leading software and digital front ends for our industry. They are having the same problems everyone else is. We’ll find out how they are handling supply chain issues.
We hope that is well received and that we are invited to do the same thing at dealer meetings throughout the year. We will continue to ask the questions that dealers have on their minds and look forward to improving the communication between manufacturers and dealers.