A Perspective shared by DSSI’s Director of Global Category Management, Michael McFerrin

I sat down with Michael McFerrin, DSSI’s Global Director of Category Management, this week to discuss what he and his team are hearing in the market regarding the relentless pricing pressure for all sides. Michael, a long-time veteran of the indirect materials market starting with his work at General Motors over 25 years ago, leads a team of Category Managers in both the U.S. and EU. These Category Managers, all tenured individuals themselves, have been working to better understand and validate the price increases they are managing on behalf of DSSI’s large manufacturing customers.

HH: Michael, can you start by telling us a little bit about how your team of Category Managers support DSSI customers today?
MM:DSSI’s team of Category Managers are charged with taking on the strategic work that’s involved in MRO and other indirect materials. These folks are constantly keeping themselves up to date on market trends, including new players in the market, pricing indices and overall direction of each of the categories DSSI manages on behalf of its customers such as PPE, Electrical, Motors, and others. These folks are continuously conducting cyclical bids, revising category strategies, forging relationships with major suppliers and acting on our customer’s behalf to rationalize millions of skus in this very fragmented part of the supply chain.

HH: Can you tell us what are they finding as they research the causes of these unprecedented increases in pricing requests from the supply base?
MM:The overall impression is that producers struggled to meet the increasing demand as manufacturing ramped up, especially in early 2021. During the COVID crisis of 2020, markets such as oil, steel, and shipping services experienced a historic reduction in demand. Naturally, these reductions caused producers to sharply curtail their output and we saw things like idling mills and forges and a reduction in routes. During the second half of 2020, manufacturing (including automotive) returned at a much quicker pace than anticipated, and producers were essentially caught flat footed. This whiplash effect caused producers to rapidly deplete their existing stock and struggle to replenish while reopening their facilities, driving prices higher.

On the other hand, markets such as resins and natural rubber remained in high demand, as these are integral to the PPE commodity (wipes, latex gloves, etc.). Resins, in particular, experienced historic price increases due to both demand and specific events such as Gulf Coast storms and a major Mexico plant fire. Interestingly, natural rubber did not experience major increases, even though demand was strong.

In March 2021, there was also a confluence of supply chain increases catching up to finished product, combined with a historically tumultuous ship carrier market. What we’re seeing now is that shipping container costs have increased dramatically in addition to suppliers experiencing a significant backlog in international shipping.

It may be too early to tell if or when prices will stabilize back to 2019 levels, but demand increases due to global infrastructure efforts may tend to keep prices high.

HH: Has your team’s work changed in the post-Covid market?
MM: Before COVID, the work of the Category management team was strategic and proactive as I described above. During COVID, however, we had no choice but to react to the market just like everyone else. We spent a lot of time identifying non-traditional sources of scarce products for our customers, sometimes taking advantage of established but underutilized partnerships with domestic manufacturers for items such as hand sanitizer. DSSI is in a unique position because it does business with 6,000 suppliers in North America and close to 22,000 when you consider the 14 countries in the EU that we support. Combining the needs of our 20 large manufacturing clients definitely helped us secure large orders of critical supplies which was a huge asset. Coming out of COVID, we’ve been able to become much more forward-looking but still use what we learned in terms of new potential supply partnerships and bulk buying opportunities that can help drive down pricing for our customers.

HH: How are they helping our customers mitigate the effects of these pressures?
MM:One of the biggest advantages we provide to our customers is just being aware of the market conditions that can affect pricing in MRO or other indirect materials. It can be such a fragmented category spanning numerous markets and it’s hard for any one company to invest in the number of people you’d need to truly have a handle “market conditions”. DSSI’s Category Management team does just that. When we get a price increase notification from a supplier, we take the time to understand the drivers behind it, push back when we don’t think it’s warranted and even look for alternate sources if the customer is willing to consider it. We’ll continue this critical work on behalf of our customers regardless of what’s happening in the market – it’s a big part of how we extend their resources and provide that lowest total cost of ownership.

If your indirect materials supply chain could use more support and structure, contact DSSI today to learn more about how we’ve helped our customers mitigate COVID and keep them focused on more value-added work.