Cummins Inc. is working through a range of supply-chain challenges, including a global shortage of semiconductors and other components, with company officials acknowledging some “sporadic impact on production.”
The Columbus-based company, which is the largest employer in Bartholomew County, with about 8,000 employees in the area, warned investors and analysts in its first quarter report that the shortages could “lead to manufacturing delays, increased costs and the loss of sales.”
Earlier this month, Jack Kienzler, Cummins executive director of investor relations, said during a virtual conference that the company has seen “increasing overtime and lack of productivity at some of our plants as you’re waiting for certain parts that you need for assembly.”
However, overall, production remains “strong,” said company spokesman Jon Mills.
“We are currently working to mitigate a number of supply constraints, including chips/semiconductors, to meet demand and serve our customers,” Mills said. “While there has been some sporadic impact on production, overall it continues to be strong.”
The chip shortage has been rippling through various markets since last summer, The Associated Press reported.
It happened because automakers and parts-supply companies closed factories and canceled chip orders early last year as the novel coronavirus was spreading, according to wire reports. The factories came back in eight weeks, faster than expected, but by then the semiconductor industry had switched production to chips for the booming consumer electronics market.
The shortage has resulted in car makers — including Ford, General Motors and others — slashing factory hours, temporarily shuttering production facilities and delaying shipments of new vehicles because they can’t get enough chips to finish building them.
The chip shortfall also has impacted the trucking industry and engine makers, though it is part of a broader shortage of components that has impacted supply chains of several truck manufacturers, according to The Wall Street Journal.
Last month, Cummins Chairman and CEO Tom Linebarger told financial analysts during the company’s first-quarter earnings call that Cummins was seeing strong demand and revenues, but “the pace of (economic) recovery has placed a strain on global supply chains, leading to increased costs and significant challenges in fulfilling all of our customers’ orders.”
“Just to call it out directly, the big problem is semiconductors,” Linebarger said during the earnings call. “There are a lot of supply-chain challenges. There’s everything, weather in Texas, now new challenges with India. You name it and we have a shortage on it, but semiconductors is the biggie. That’s the one that’s really hard to deal with.”
And the shortage is also impacting some of the companies that Cummins listed in its 2020 annual report as “principal customers” of its medium- and heavy-duty truck engines, including Navistar International Corp. and Daimler Trucks North America.
It has also impacted PACCAR Inc., which Cummins said in the annual report is its largest customer, accounting for 15% of consolidated net sales last year.
PACCAR Inc., which makes medium- and heavy-duty trucks under the brands Kenworth, Peterbilt and DAF, said that the semiconductor shortage and other supply chain disruptions reduced the company’s truck deliveries by about 3,000 units during the January-to-March quarter of this year, according to its quarterly report.
The company is anticipating that supply-chain disruptions will continue to reduce deliveries in the second quarter, but the situation could improve in the second half of the year, “if there is adequate semiconductor supply,” the quarterly report states.
Navistar, for its part, said that the truck and bus industry “continues to face disruptions within the supply chain,” according to a quarterly report ending April 30.
“The supply constraints include overseas freight congestion causing extended lead times, semiconductor allocation, other raw/component material shortages and supplier staffing challenges,” Navistar stated in the quarterly report. “The Texas storms in 2021 further exacerbated an already constrained semiconductor and resin supply chain.”
A spokesperson for Daimler Trucks North America, which manufactures trucks under the Freightliner nameplate, told The Wall Street Journal that the company has faced challenges due to shortfalls in labor and raw materials but production was still “moving closing to plan.”
Currently, it is unclear when the shortages may ease. Kienzler said earlier this month that Cummins is still seeing “a lot of pressure in the supply chain” and expects that at least some of the constraints could last for the rest of the year.
“It does feel like many different supply sources are sort of dried up, and, importantly, the order cadence and demand has not subsided. We continue to expect, really, the supply chain constraints to last probably for the balance of 2021,” Kienzler said.
