The 2022 construction industry trade show season is now in full swing after many were canceled in 2021 due to the COVID pandemic. The Frame Building Expo in Nashville and the International Roofing Expo in New Orleans showcased new products and allowed suppliers and attendees to conduct business in person, rekindle and strengthen relationships and forge new ones. A common theme at these shows has been the difficulty in procuring key products in a timely fashion. Demand in both residential and commercial construction is still strong. Most attendees have a definite purpose in mind. If existing suppliers cannot meet their requirements, they begin the search for a new source of supply. This presents opportunities for suppliers to gain new customers, but they also need to protect existing market share with current customers.
Some suppliers welcome growth opportunities while balancing the need to service existing customers; others decide it is best to allocate existing supply among its current customer base, turning down new business until they’re confident they can service this new influx. Lead times, traditionally days or weeks, allowed customers to order smaller quantities more frequently, helping to ensure an efficient turnover of inventory. The supply chain disruptions have now increased lead times for high demand products, some as far as 10-12 months. Efficient inventory levels are no longer as important as procuring as much as possible.
How does a company respond to these challenges, compounded by a steady stream of double-digit percentage price increases? Purchasing agents, engineers and small business owners are now required to find alternative sources of supply to meet customer demand and accept different products as equal. Material costs have become secondary in importance to product and labor availability. The inflationary effects of these increases are passed along the supply chain. Demand remains steady, but if increases continue, projects will halt. No one knows when we will reach that point.
The saying “a rising tide lifts all boats” is apropos. Sales, revenues and profits remain strong. However, the economics of supply and demand always seek equilibrium. Now, demand is outstripping supply by a large margin and prices reflect that. Once supply catches up to demand, prices will begin to fall. This level of volatility in the economy has not been seen since the early 1980s.
In summary, business owners must balance how to service customers now, but not assume this is the “new normal”. Mr Market has a nasty habit of surprising us when we are least prepared. RB