Why aren't companies rising to meet the ammo demand?

[breakingcontact]

We have all read the response to folks complaining about the ammo shortage..."its supply and demand!"

OK, so you econ 101 wiz kids answer the other half of that equation...why hasn't the supply risen to meet demand? If the big ammo makers can't or won't expand production why aren't smaller ammo makers rising to get a piece of the pie. If the answer is they can't get the materials, they why aren't companies coming up to provide, primers, powder, lead and brass?

Are these manufacturing processes not as simple as I see them to be? Are their choke points in the supply chain that cannot be opened up during a time where demand has increased?

 

[firesky101]

We have seen these shortages before, they just do not last. If you are investing in new equipment to bump up the manufacturing you are looking at 10 years from now, not ten days. That equipment must produce a certain amount of product before it will pay for itself, and if your demand drops in 9 months and you idle that machine it is just a big fat red mark in the ledger.

 

[frankenstein406]

shareholders gotta make them happy

 

[hoghunting]

http://www.hornady.com/support/availability

A Word on Availability

The current political climate has caused extremely high demand on all shooting industry products, including ours. Empty retail shelves, long backorders, and exaggerated price increases on online auction sites – all fueled by rumors and conjecture – have amplified concerns about the availability of ammunition and firearms-related items.

If the information you hear doesn’t originate from Hornady Manufacturing, don’t believe it.

Here are some of rumors we’ve heard, and questions we’ve received:

Have you stopped production, or has the government forced you to stop?
Not at all.
Did you stop selling bullets so you could only make loaded ammunition?
Absolutely not.
Since we can’t find your product you must be selling it all to the government.
Nope, less than 5% of our sales are to government entities.
Why can’t you make more? Ramp up production? Turn on all the machines?
We’ve been steadily growing our production for a long time, especially the last five years. We’ve added presses, lathes, CNC equipment, people and space. Many popular items are produced 24 hours a day. Several hundred Hornady employees work overtime every week to produce as much as safely possible. If there is any question about that – please take a tour of the factory. You’ll be amazed at what you see.

We are producing as much as we can; much more than last year, which was a lot more than the year before, etc. No one wants to ship more during this time than we do.

We appreciate everyone’s understanding and patience. We don’t know when the situation will improve, so please bear with us a little longer. And remember, when it comes to Hornady Manufacturing, if you don’t hear it from us, please don’t believe it.

 

[denton]

It's simple. The structure of the market is that the military gets about 95% of the ammunition production in the country. The whole production chain from turning tree fiber into nitrocellulose onward is geared to fill that, with a little left over. Sporting ammo gets most of what's left, and reloading components make up the rest.

If one factory goes down, or if there is a small uptick in military demand, sporting ammo gets the whammy and reloading components get the double whammy.

Manufacturers know that the current bubble won't last. They are not going to invest capital to fill a demand that won't be there by the time they get the equipment set up, especially when their main customer doesn't care about having supply that they can't use.

 

[Fred_G]

We have all read the response to folks complaining about the ammo shortage..."its supply and demand!"

OK, so you econ 101 wiz kids answer the other half of that equation...why hasn't the supply risen to meet demand? If the big ammo makers can't or won't expand production why aren't smaller ammo makers rising to get a piece of the pie. If the answer is they can't get the materials, they why aren't companies coming up to provide, primers, powder, lead and brass?

Are these manufacturing processes not as simple as I see them to be? Are their choke points in the supply chain that cannot be opened up during a time where demand has increased?

I am not sure what your Econ question is. If a McD's is too busy one day on your lunch break, do you try to open one next to it for the overflow business?

As far as supply and demand, look at price, you left that our of your OP. Supply and Demand change the price. Right now, I can find very little 9mm .45ACP or .22lr. What is available in limited quantities and at a high price.

 

[9mmepiphany]

Are these manufacturing processes not as simple as I see them to be?

This is an accurate statement

It isn't geared to meet immediate gratification of short term shortages. That is also the reason no one is stepping in to fill the void

 

[Shadow 7D]

It goes BEYOND it
when you look up 'Global Supply Chain Management'
It used to be that a manucature stockpiled HUGE ammounts precursors, as they got them in LARGE lots, well, that leads to excess, now the goal is to NOT have surplus, rather have on demand, this means that what used to be a HUGE stockpile, is rolling stock, when they need more they order more and have X many days on hand waiting delivery of the rest....

That means that the 95th% spike, kills the surplus in the system (or in this case, they can't make ALL the calibers at the same time) and the reserve stockpile, there to give them time to change production.... what we are seeing is the actual production output. It's a MUCH leaner system, that mean this happens, not that it wouldn't in the past, just that reserves might have been higher.

ALSO, the wild card is IMPORTS, now, where are they?
THAT is what we should be wondering.

 

[Telekinesis]

Another reason new companies aren't "rising to get a piece of the pie" is that there are rather severe barriers to entry in manufacturing ammo, none of which are quick and easy to get through.

Any company that is going to even make a dent in the supply of ammo is going to be a fairly large manufacturing company, not your average guy in his basement with a single progressive loader. That means incorporation, lawyers, industrial machinery, a lease on a building in an area with the correct zoning, creating and maintaining relationships with both suppliers of materials AND wholesalers or retailers (and good luck trying to find raw materials right now!). Then you can get into the regulatory issues such as your FFL (and interviews) and other various fees/taxes/licenses like general business licenses, ITAR, liability insurance, and then HAZMAT training for your employees who are going to be near and/or handling low explosives.

Realistically you're looking at a minimum of 3-6 months to get everything up and running from the day you say go until your first box of ammo gets on the truck, then you're looking at a minimum of 12-18 months before you can start to make real profits. The general rule for an entrepreneur starting a business is that all profits will be rolled back into the company for that 12-18 month period (which means either no pay check or a very meager pay check for you, the owner). These kind of companies are not the kind of companies that pop up for the 4 moths of panic and then disappears until the next panic happens, these must be long term operations.

Basically it boils down to this: it is a good time to be in business, but it is a horrible time to get into the business.

 

[apostle83]

I toured Remington's mom plant in Arkansas in 2010. They were going full bore on equipment manufactured to fill the demand for WWII. WELL, except for packaging machines they bought from Germans that were originally used to package cookies.

Point being I don't even know if we have the expertise left to make new equipment for mass ammo production.

 

[-v-]

Simple, because the factories are already running at 100%, and to expand capacity not only takes time, it also takes *A LOT* of $$$ to build the new building (after all, Federal isnt going to just park this in a grassy field), buy and wait for the new machines to be built, and have them installed, fine tune the production line, crank it through a few times to get the QC right and start manufacturing everything.

From the managerial decision of "we need to add another line" to it shipping its first box of ammunition will take quite a bit of time.

If every company decided on December 14th to expand capacity, I'd be shocked if those new lines and plants were up and running by about the same time next year, never mind 3 months from the event.

An other element is I am quite sure most manufacturers realize (thanks to prior trends) that this is a temporary run that will resolve itself in 6-8 month's time. Why spend millions on a temporary bump?

The technical expertise is also quite there. The whole ammunition manufacture process is fairly simple. The machinery that makes ammunition is actually quite a bit simpler then the machinery that makes a bottle of Coke from start to finish.

 

[blarby]

Because this demand won't be here 1 year from now.

The costs from tooling up to meet this sudden spike in demand will be.

 

[c4v3man]

Point being I don't even know if we have the expertise left to make new equipment for mass ammo production.

With the advances that we've made in manufacturing technology, robotics, computer driven QA checking, I fail to see how that's possible. While I agree that we make very little anymore, that's due less to a lack of talent, and more to a lack of cheap labor. As stated above, equipment is expensive, especially with reliability required in dangerous ventures such as manufacturing ammo, where mistakes can and do cost lives, create massive lawsuits, etc. Creating more equipment for small spikes is not profitable since you're not going to want to pay %20 more for ammo to cover the expense after the demand has been filled. I'd imagine it's a pretty low margin industry, which makes it difficult to have equipment go unused and still turn a profit.

 

[evan price]

Simple solution- if you feel the industry isn't meeting the demand and think you can do better, feel free to startup your own ammunition manufacturing concern and start producing ammo for sale to fill the niche.
Should be a pretty simple thing for you to find brass, bullets, primers and powder, plus the machines to make it, a building to put it in, insurance, federal, state and local licensing & taxes, insurance, employees, insurance, taxes, permits, and insurance, and a marketing plan?

 

[Blackstone]

So the choke is not at the raw material availability?

 

[Tony50ae]

The structure of the market is that the military gets about 95% of the ammunition production in the country.

I just can't see that being possible. Our military is not even that large anymore and in fact cuts are being made to personnel right now. We are no longer in Iraq and Afghanistan is winding down.Even Hornady says only 5% of their ammo goes to government contracts. Any sources for this info? No saying that this is a lie, but I suspect that this is a rumor that started somewhere.

 

[Queen_of_Thunder]

Lets start with finding land for a factory.

Once found is it properly zoned forthis type on manufacturing.

Utilities must be put in.

Environmental impact studies must be carried out. (lead) That could take a year or more to get done.

Now the permitting process begins. This is a long process.


So we have completed the environmental study and its been approved, zoning has been approved and we have our permits. Now what.

Well we need suppliers of powder,primers and cases which BTW the competiion has a lock on. So where does the new supply come from?

We also have to order the equipment to bring the primers,cases and powder together to produce the ammo. This equipment is custom built so lets say another year to wait.

Then there is employee hiring, training and such. Wharehouse for finished stock and materials.

We haven't even talked about the money side yet.

 

[JohnBT]

"The structure of the market is that the military gets about 95% of the ammunition production in the country."

This theory still doesn't explain the shortage of .22 LR.

 

[SaxonPig]

Denton- I do not believe the military gets 95% of ammo production. Hornady said 5% of their sales are military.

I'm sure all ammo makers are working as fast as they can. This panic has happened before, and will happen again. Have enough on hand to ride out these bumps in the road.

 

[HoosierQ]

It's simple. The structure of the market is that the military gets about 95% of the ammunition production in the country. The whole production chain from turning tree fiber into nitrocellulose onward is geared to fill that, with a little left over. Sporting ammo gets most of what's left, and reloading components make up the rest.

If one factory goes down, or if there is a small uptick in military demand, sporting ammo gets the whammy and reloading components get the double whammy.

Manufacturers know that the current bubble won't last. They are not going to invest capital to fill a demand that won't be there by the time they get the equipment set up, especially when their main customer doesn't care about having supply that they can't use.

Maybe in the Second World War. This is false.

 

[alsaqr]

The structure of the market is that the military gets about 95% of the ammunition production in the country.

Show me!!

 

[baz]

To the OP: I'm not saying anything that others haven't posted before me. I'm just putting it into a slightly different perspective. You asked: "Why aren't companies rising to meet the ammo demand?" How do you know they aren't? Given the lead time to bring new production on line, they could be "rising to meet the ammo demand" and you wouldn't see the results of it for some time.

Now, I don't know whether they are doing this or not. But if not, it would be for reasons that others have posted, such as the fact that they view this as a temporary spike in demand that will not last, and thus doesn't justify the cost of additional long term investments in production.

Bottom line, and again just repeating what others have said: be patient, and as demand returns to normal, slowly stock up some, so as not to be caught unprepared the next time it happens.

 

[Creature]

Because this demand won't be here 1 year from now.

That is debatable.

And the crux of the whole problem.

The ammunition manufacturers are surely betting that the bubble will burst, but it is very possible that we are looking at a whole new 'sea level' of demand. Manufactures have been wrong before. But because the market is so volatile right now, it is very difficult for manufacturers to gauge how much they should increase their future production capability.

 

[beatledog7]

I've commented before that ammo makers must have ramped up, and I'm still calling it that way. The above Hornady comments back that up--running at capacity, overtime, etc.

Successful companies in any industry have to think long-term to remain successful (companies in those industries that are favored by the politicians in power excepted of course). An ammo maker that's acquiring as much raw material as it can without busting its purchasing cost parameters and operating at capacity has a hundred considerations to make before expanding its production capability, and most will include political realities in that list.

If I were a manufacturer in the firearms industry, I'd be trying to balance current market demand and its opportunity to make big profits with the pitfalls of investing in capacity which might, by the time I could have it up and running, be forced into dormancy by new regulations.

My thumbnail analysis says the right answer is: 1) Add a shift, amplify efforts to get the materials we need, run at safe capacity. 2) Make no new investment in physical plant capacity, for now.

 

[Sniper66]

I talked with people at Sierra and they say the same thing. They are running at max speed and are simply flooded with orders. I did mange to order some Sierra bullets from Natchez, then got an email from Midway letting me know they have some. I'm hoping they are catching up, but as far as ammo is concerned, I think the demand will continue for months to come..