You may be tempted to put your head down and think things will get back to normal soon, but I wouldn’t recommend it. I doubt things will ever be the same. Sure, the bustling housing cycle will cool at some point, but we should all resist going back to business as usual. Rather, we should learn from our experience and adapt to the future.
I think every functional area within home building—from land and community development to accounting and human resources, as well as the supply chain—should identify the lessons learned from the pandemic and to what extent those lessons have changed their way of doing business. Here are my top five for the supply chain.
1. Know the limits of Lean
First, let me say I am a big proponent of the Lean approach. I highly recommend it to drive out non-value-added activities. And I hope organizations take a closer look at the excess inventory category as well.
But a Lean approach to excess inventory at the distributor level was never meant to equal no inventory. During the last year, I’ve seen stock-out situations in most home building material categories. I don’t know about you, but when I think of a distributor, I expect them to carry some inventory. Most stock very little these days, in large part because they rely too much on regular shipments from manufacturers.
- Inside the Skilled Labor Shortage [VIDEO]
- Home Builders, How’s Your Supply Chain?
- Who Can Shorten the Supply Chain for Home Building?
I worked in that segment early in my career and I know the pressure distributors are under to increase inventory turnover. That said, it’s time for distributors to reevaluate how much safety stock they carry and how much safety lead-time they factor into their material requirements planning software. Home builders can help by reducing the number of SKUs they use.
2. Avoid sole-sourcing supply disruptions
I’m willing to give some the benefit of the doubt, but can any home builder honestly say they have not been let down by a trusted trade during the last year? I can’t.
I doubt I’m the only one who received a call explaining how much a trade’s business has increased or how they can’t find labor or get materials and thus won’t be able to meet their commitments.
Specific to materials shortages, installing trades will naturally blame the distributor (who blames it on the manufacturer), but remember, your contract is turnkey.
While I believe there is value in single sourcing manufacturers, I highly recommend that you avoid it with your installing trades.
That means you’re paying that trade to manage the supply chain on your behalf and to make sure they have the materials needed to perform their scope of work on the commitment date. By not honoring that commitment, they’ve disrupted your schedule.
To prevent further delays, you roll up your sleeves, call some people you know, and help the installing trade find the material. That took all afternoon, so it cost you time you could have spent working on something else. Then you get a change order request because the new material cost more than the material initially specified that didn’t show up. That just cost you your budget.
The lesson: Put all of your eggs in one trade’s basket and some eggs are sure to get broken. While I believe there is value in single sourcing manufacturers, I highly recommend that you avoid it with your installing trades. If you have someone that does a great job for you, then give them up to 80% of your business and another trade the rest.
3. Collaborate on the supply chain
One fundamental change you’ll likely have to make is knowing where your installing trades buy their materials and what materials they use, and to make sure they have overlapping sources of supply and pre-approved alternatives to specified materials anywhere you don’t have a national agreement. Ask the installing trade to involve you the moment they see any sign of a supply disruption.
4. Stock your supply chain team
I continue to be impressed with some supply-chain professionals who find ways to get back-ordered materials in time to keep the closing date. When they identify or hear of a supply shortage, they immediately reach out to their network. They don’t delay contacting the manufacturer to see if they can expedite a shipment.
If they are told no, they reach out to other distributors to find inventory, then reach out to other installers to see if they have any surplus. If not, they pivot and consider alternative products. The point is, they don’t give up easily, or at all. If all you get from your purchasing person is hands thrown up in frustration, then you need a different purchasing person—someone who’s a go-getter and a dog on a bone.
When you think about it, as home builders, we buy everything but don’t build anything. We manage the process. You need the best people you can find to serve in your purchasing department. Not only to manage your costs, but also to ensure you have the materials and labor needed to keep construction going and to meet the commitments made to your homeowners.
5. Address the skilled labor shortage
As an industry, we’ve been talking about a skilled labor shortage for at least the 20 years I’ve been in the industry, and probably longer. We simply must figure out a way to get more people into the skilled trades.
Part of the solution is simply paying people a decent wage. I think we’ve made great strides in this area over the last year, but it hasn’t inspired a wave of new (and younger) people to join the industry. Rather, trades tend to compete for one another’s employees, meaning the same people are getting paid more without making up for those aging out or otherwise leaving.
The public perception and realities of the construction trades are barriers to recruiting talent. I’ve talked with many skilled tradesmen who don’t want their children to follow in their footsteps. It’s natural for a parent to want a better life for their kids, but when, as a culture, did we turn our backs on trade schools to focus almost solely on college? And to what end? I’ll bet you know at least one college graduate carrying huge student loan debt and a job where they’re underemployed. I do.
I worked hard to put myself through undergraduate and graduate school, but I don’t know if I would have taken the same path if I were to do it all over again. I enjoy working with my hands and I know enough tradesmen who started a business and are now multi-millionaires. I also got a great deal of satisfaction when I remodeled a rental or built a room addition.
As an industry, let’s encourage the next generation to follow their passions, expose them to the skilled trades, and share the opportunities in choosing that career path.
We need to be sensitive to the new realities that have emerged from the pandemic. We certainly know that e-commerce has grown in importance, that employees expect more flexible work schedules, and that some of the ways we’ve “always” done things won’t work as well as they once did.
Let’s have home building emerge from this crisis a better industry.
Sales 101: When Negotiating, Pay Attention to Body Language
Your ability to recognize nonverbal cues at the negotiating table can mean the difference between a bad deal and a successful outcome in a sales negotiation
Purchasing Staffing Ratio: What Should It Be?
How to figure out proper staffing in your purchasing department to balance costs and value with profitability
A Six-Step Strategy to Reset Material and Labor Costs
In collaboration with your supply chain partners and internal team, consider this approach to adjust your costs and boost housing affordability