By Jennifer Castenson | Forbes
September 27, 2021
Supply chains have been a complicated issue since the beginning of time, in all types of situations, from the battle field to the project site.
In the case of the battlefield, lives were on the line as supplies weren’t able to get through the devastated landscape and the broken lines of transportation. For housing, affordability is on the line as typical supply chains are disrupted, altered and even shut down.
Nowhere is anyone escaping the issue. As Martin Luther King said, “Whatever affects one directly, affects all indirectly. I can never be what I ought to be until you are what you ought to be. This is the interrelated structure of reality.”
Now, builders, developers, manufacturers, architects, and contractors are dealing with that reality and trying to reimagine a more successful path forward, while all trying to serve themselves and their own bottom lines. It’s a messy paradigm.
Some manufacturers depend on either components or assembled products from overseas. The shipping costs for containers from China to the east coast of the US have climbed more than 500% from one year ago according to freight-tracking firm Freightos. Yet, nowhere is there room in the home building process to pass along an increase of 500%.
Bob Tancula serves as senior vice president of building product manufacturers advisory at national media and data group Zonda and says that another large part of the issue is about labor.
“One of the biggest issues is labor constraints,” he said. “Manufacturers don’t have enough labor on the plant floors. Demand is not going to drop back, so this is the first time in 30-plus years where the demand for products is unlikely to be met by manufacturers.”
With that growing demand, manufacturers are investing more in labor. Some have started to offer higher wages, spending more to attract and keep workers, even offering sign-on bonuses. Tancula believes this increase in labor costs will likely constrain market growth.
As a temporary fix, some service-oriented categories have tried paying people at the end of the day or the end of the week to entice them to show up.
Greg Leung is the CEO of Connect Homes, a California-based builder delivering high-tech housing solutions, who also spent more than a decade at Apple as senior director of worldwide supply demand management.
He says that technology has a much more global supply chain and that it has a lot more components than housing, pointing out that housing is much simpler.
“Supply chain management is all about information and decision making,” Leung said. “In technology, over decades of management, there is a great deal of information and stakeholders have learned to use data to make decisions on supply chain visibility and inventory, which means it can be managed better. The building supply chain isn’t as advanced. It has lots of blind spots, which makes it difficult to manage and it can cause bullwhip affect.”
A good example of the bullwhip effect was lumber during the pandemic. Builders started to fear a shortage, they stocked up, it exacerbated the shortage, prices went up, then manufacturers ramped up production. The increased production can then lead to a glut of lumber, which would then lead to dropping prices. It starts with a small disruption, and gets amplified with customer buying behavior.
Leung says the antidote to bull whip effect is more information. In the lumber example, suppliers could proactively smooth out the peaks and valleys if they had the right information, but he says access to data in housing isn’t sophisticated enough.
One area he suggests housing leaders could improve is looking at the situation to differentiate between end user demand and actual consumption.
“For example, home starts have increased but not quadrupled, while pricing has,” Leung said. “What you can do is manage different tiers and differentiate between users and consumption and not just fear and stocking up. If you have data to see if the increase in demand is actual consumption or panic buying, that’s a very important tool.”
He also suggests building strong, strategic relationships by choosing partners carefully and sharing your vision and private data with them, which is more difficult to do in the housing industry because it is more transactional and less collaborative.
“To drive innovation, you have to get partners to buy into the mission,” Leung said. “It requires buy in and support that you can’t get without a personal and professional relationship. You should help them become part of the strategy and objective, and maintain close relationships with the management of the company. That’s a typical tech practice.”
Amit Haller is founder and CEO of another home building company Veev and he has found ways to be avoid the shortages in the supply chain impacting the industry. His building process is unique and doesn’t rely on the materials that the rest of the industry relies on.
“A lot of the materials that are challenging other builders practically don’t exist for us,” Haller said. “We don’t use the wood or paint. Now the wood is not just the wood, resins are in shortage as well because of the factories shutting down in Texas and are not back in production. We also make kitchen cabinets with high performance surfaces, which puts us at a very strong advantage.”
Many builders are not in a position to make these sweeping changes to materials.
The challenge continues to be how to develop solutions that strike the targeted balance between effectiveness, agility, reliability, speed, visibility, and cost…
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