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Stronger supply chain

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  • SIMA
- Posted: July 5, 2018
By Tony Johnson

Since 2009, I have seen three winter seasons where buyers of salt were cut off from their primary supplier and paid upward of three times the original cost for salt compared to the beginning of the season. The term “salt shortage” is a misnomer. Salt is available - there just may not be enough salt above ground, harvested or available in a given market sold at the start-of-the-season prices. Some suppliers say this was the result of an act of God (i.e., supplier had no control of the shortage). Is this true? 

In reality the salt shortages are due to poor planning; suppliers over-selling their pile; assumptions that the supplier can replenish during the winter season; not having enough salt in local storage before the season; and the supplier trying to achieve their lowest cost at the expense of meeting demand.

As a salt distributor and supply chain specialist, I can predict about 40% of my winter business each year. The other 60% is unpredictable, but we have a plan to protect our salt supply and our committed customers. I have learned that to have long-term success is to have a dependable supply chain and strong business processes to understand your bottom-line costs and profit in delivering a product or service.

Aligning goals
Given the important role that salt plays in a snow removal company’s business, how can you better prepare to not run out of salt during winters like we just navigated? 

Your plan depends upon your company goals, customer requirements and comfort level if your supply chain fails. If your business and brand require a solid supply chain, then as a purchaser you must be willing to compromise on at least one of the top five goals contractors want when it comes to their salt supply:
  • Receive good quality salt
  • Receive their salt within 1-2 days from placing your order
  • Have no risk of holding/storing too much salt over to the next season
  • Guaranteed supply but not being on the hook if there is a light winter
  • Purchase at the lowest price available in the market
To be honest, most contractors in the Midwest met all five goals for seven of the last 10 seasons due to a below-average number of snow events of 1 inch or greater and above-average temperatures. But we tend to remember the three years when salt was unavailable for purchase at start-of-the-season prices. 

When reviewing contractors’ purchase history over the last 10 years, the average cost per ton for buyers who purchased salt at a modest per/ton premium over the lowest price in the market (which guaranteed supply and free storage for next season) paid the same 10-year average cost as buyers who purchased the lowest cost salt for that year and in some years got cut off and had to pay two to three times the low price during the last 30 to 45 days of the winter season. 

During the cut-off times, it left customers vulnerable to slip and falls and contractors lost customers the following season. Having a stable supply chain protects your ability to service your properties and gives you more predictability in your business. 

Fend off shortages
For snow companies with a long-term salt supply chain management plan, an underlying message to the customer is “We don’t run out of salt!” How can you deliver on that promise? Keep these industry trends and tips in mind when determining how to purchase bulk road salt:
  • Accept the inevitability that salt shortages will happen in all markets.
  • Remember that when you need salt, everyone else in your market does, too.
  • Know which producer(s) in your market won a majority of the municipal business and from which storage piles the salt will be sourced. This is important since these piles are more at risk of being oversold in a high demand market.
  • Most government bids have guarantees and non-performance penalties, giving them preference with suppliers to ensure these contracts are fulfilled before non-guaranteed contracts.
  • Drive by the salt piles starting in October at least every other week to watch how fast the piles replenish and deplete. Visit more often after snow events to gain insight into how fast the salt piles are depleted and if those salt piles are being replenished based upon how the salt arrives (i.e., if rivers are frozen it is impossible for barges to arrive in a market). This will help you determine if you should acquire your remaining allocation.
  • Buy from multiple suppliers, preferably from those that control their salt. Typically, a 50-50 split will give you the same level of pricing. When buyers begin to get cut off, it is only a matter of time before distributors that do not control their own piles will too. Suppliers that control their supply are producers, salt importers or distributors that move the salt from their source to their property.
  • Purchase from salt suppliers that will guarantee your committed salt purchase.
  • There are low-quality salts entering the markets. Before you purchase, inspect the salt on-site for excessive moisture and fines.
Take the next step
If your company is seeking moderate to fast growth, in addition to the aforementioned tips and depending upon the distributor models in your market, consider the following to bolster your supply chain:
  • Create a long-term sustainable and dependable supply chain that enables your business to thrive every winter.
  • Purchase from at least one distributor who sells product in markets at least 300 miles from your territory and has been proven to purchase salt from many sources across the country. During a shortage, this supplier can continue to service you from closer markets, reducing your exposure to higher transportation costs.
  • Build a facility to store and control 30 days of salt. With an asphalt base, concrete blocks and fabric roof, this is about a $30,000 to $50,000 investment, depending on your market. This cost would be recouped after the first shortage season through lower material cost and profit from selling salt to smaller snow removal companies that were not as prepared as you.
  • Adopt alternative methods for snow and ice control that give you a competitive advantage.
Look for alternative solutions
Although securing your access to salt is the focus of this article, savvy contractors will not rely solely on salt to service their customers. Savvy contractors will also implement best practices to reduce the amount of salt required to safely and effectively remove snow and ice, including:
  • Use mechanical means of removal. Today’s plows can deliver a cleaner scrape, which will reduce the amount of salt that needs applied.
  • Calibrate your spreaders to know exactly how much salt you are applying.
  • Use liquids to pre-wet salt to increase the effectiveness at lower temperatures, allowing you to use less.
  • Implement anti-icing protocols to get ahead of the storm and prevent the bond between ice and surface.
The salt supply chain is exposed to failure (i.e., salt shortage) each year because salt suppliers try to meet the buyers’ top five goals while also trying to meet the same goals for themselves in an unpredictable industry driven by weather. In a given market when there are two or more events, the pressure put on the local salt supply is intense. Salt suppliers cannot build a business model to sell 50% higher than expected volume, because they would add a significant amount of fixed costs resulting in them not being a low-cost supplier. 

As consumers of road salt, we have to ask ourselves whether we are being realistic in the expectations that we place on the industry. Are we the cause of unstable salt prices and salt shortages? There are contractors with predictable and sustainable supply chains. Do you want to be one of them? 
Sticker shock
Following are true cautionary tales from contractors that mismanaged their supply chain approach at costly results. Don’t let the same happen to you.

Scenario #1 
A contractor in the Chicagoland market committed to 500 tons from a salt producer for $4 less per ton vs. working with a distributor that would guarantee his supply. This past winter, he used 275 tons before being cut off in early February because the producer was committed to fulfilling guaranteed municipal contracts first. He contacted other producers and distributors, who were either not taking new customers or were also cut off. He was finally able to locate 150 tons, but it cost him. Instead of saving $2,000 on 500 tons, as he thought at the beginning of the season, he paid more than $6,000 above the price from the guaranteed distributor for only 425 tons.

Scenario #2
After being cut off from their supplier, a contractor had to pay more than $100,000 above start-of-the-season prices to secure 2,400 tons for the rest of the season. Purchasing and building a salt storage facility with asphalt foundation to hold that amount of salt prior to the winter season would have cost about $70,000.
 
Tony Johnson is President of Midwest Salt. Contact him at tony.johnson@midwestsalt.net.
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