It sounds simple: add more space, add more stock and growth will follow.
In late 2022, I was invited down to Selmach Machinery in Hereford to see their expansion first-hand and find out more about why they’d made their investments.
Demand and stock availability in 2023
It’s not a surprise to hear that the expansion of premises and machinery was down to demand, strong growth projections and, therefore, the need for more stock.
A significant factor that presented itself after the CoVID-19 pandemic was extended lead times for all capital equipment. Against this backdrop, holding stock became even more crucial as lead times extended further, and delays became commonplace in the market.
During the CoVID-19 pandemic, the purchasing of capital equipment decreased. As businesses reopened, there followed a short period of uncertainty, and capital expenditure decisions were delayed further.
After this minor blip, though, the metal and wider engineering sectors started to perform very well. This was particularly clear in late 2020 as prices increased and then boomed throughout 2021 and into 2022.
The result of this performance is obvious. Profits resulted in investment, equipment orders rapidly outstripped supply and lead times extended.
The market for new and second-hand machinery boomed, and similar to the car markets, stock became highly desirable and often more expensive than buying new.
Asset managers had seen equipment values plummet in 2020, and then bounce back to historic highs in 2021, and companies that would buy exclusively new equipment had to enter the used market which further increased prices for stock machinery.
Over the last 12 months, I’ve heard the same story over and over again when it comes to the delivery of NEW capital equipment: Delays, delays and even more delays. We’ve seen it most acutely with technology, and in particular in the car industry because of the chip shortages. Although the issues surrounding vehicle supply captured most of the headlines, the wider implications of shortages have impacted us all.
Is it just demand, or are there other factors?
There are a number of other circumstances that have further exacerbated the extended lead times for new equipment including:
- Shipping cost increases and lack of containers
- Labour shortages caused by the loss of experienced staff during CoVID-19
- A lack of skilled workers filling the resulting vacancies, and in the UK a loss of many engineers after Brexit
- Readily available capital like the Government Super Deduction
- Bounceback loans in the UK
- Shortage of raw materials
There are plenty more, but this was the backdrop for our visit to Selmach Machinery in late 2022.
Expansion, and more stock
I’ve seen plenty of industrial units over the years, and many full of stock but I wasn’t quite sure what to expect with Selmach Machinery. I was initially surprised at just how much stock was available and how broad the range is.
Dave Hargest (Marketing) gave us a tour and then spoke about how strong demand for machinery had been over the last two years. Dave said that expansion had to occur, as they just didn’t have the room for the amount of machinery that the sales teams were supplying.
“It had always been a bit of a juggling act for us in terms of being a showroom for machines, and also having enough space to store the machines, so the expansion has really helped us.”
Of particular interest was how Dave has seen a shift in the UK market.
Fabricators are now producing a lot more in-house because parts that they would have typically ordered outside of the UK were now on longer lead times, affecting production and supply. These issues had been exacerbated by Brexit, CoVID-19 and demand in general, resulting in businesses buying more equipment to be more self-sufficient.
What had been even more of a surprise to Dave and the team was the number of industries that were buying machinery to produce items in the UK that they would not have even thought to approach. This is echoed by other UK manufacturers I’ve spoken with who have been reselling products into markets that they had either stopped doing business with many years ago, or were selling to for the first time.
Another growth area for Selmach Machinery has been in more environmentally friendly machinery. The expanded unit was full of Morgan Rushworth Press Brakes, including fully electric and hybrid options, which I was not aware existed before my visit.
Dave explained that businesses are looking at ways to use less energy and reduce their environmental impact. The new eco-option press brakes allow businesses to use less or no hydraulic oil, save money on energy, and also benefit the workforce as the machines are quieter, improving staff working conditions.
These new press brake options are less powerful than fully hydraulic press brakes, which still make up the majority of sales, but the eco-options are expected to become more popular in the future.
Anthony Bushnell (Managing Director) talked at length about how Selmach had decided that the time was right to invest and grow the business.
“There was a lack of confidence to invest coming out of CoVID as it was unknown how strong the market would be. It soon became apparent that there was a high demand and the industry bounced back way beyond expectations.”
Sometimes market conditions present themselves in a way that your hand can almost be forced into action. With an established business, Selmach Machinery were in a position where they could make the right investments, and I think given that they’ve had a record-breaking sales month in January 2023, the investment is paying off.
At the end of 2022, there was a lot of talk in the UK about a recession. The metal and engineering sectors are typically the first to go into a recession and often the first to come out the other end, but trading still looks strong, and with machinery lead times unlikely to improve in the coming 12 months and beyond, I think Selmach Machinery will have another strong year in 2023.