Record consumer and industry demand with supply chain shortages continue into 2021. But the lumber and building materials (LBM) industry can still digitally reinvent and optimize supply chains.
In 2020, builder confidence rose to historic highs while interest in contractor-led and DIY home renovations exploded, a trend partially driven by the growing amount of time spent at home. Those staggering levels of demand, plus the resulting hikes in lumber prices, over the past year have helped highlight the importance of a highly optimized supply chain. It's also shone a bright light on the role an automated, data-driven and cloud-enabled supply chain management strategy will play going forward.
Challenging Year, Positive Outlook
In 2020, low-interest rates and an increased focus on the home helped drive prospective buyer traffic. This created demand in lower-density markets like the suburbs and rural areas. All the time working and staying at home this past year has also inspired a remodelling frenzy. According to a poll of over 1,000 homeowners by Bank of America, 70% of those surveyed said they took on home improvement projects in 2020 with more planned for 2021.
But what should be positive news for building supply businesses is offset by shortages and disrupted supply chains. New safety protocols have slowed mill production. And a bad wildfire season has driven lumber prices up more than 170%, according to the National Association of Home Builders. These challenges extend across a wider spectrum of building materials beyond lumber, as well. LBM suppliers have grappled with shortages of windows and doors, plywood, insulation, and other components.
There's no doubt these elements will make for a challenging road ahead for the LBM supply chain. But it's also an opportunity.
Capitalizing On the Paradigm Shift
Businesses in the LBM sphere can tap into the growing demands with digital-enabled platforms. These give them greater end-to-end visibility of their supply chains.
According to research by McKinsey on the economic effects of COVID-19, the companies that came out ahead following the 2008 financial crisis were in engineering, construction and building material companies because they moved quickly to become more productive, reallocate resources, and invest in digital technologies.
“Organizations must think through the moves they can make today to come out ahead later," write the authors of the McKinsey report. “A fast return to business as usual seems unlikely for the industry: leaders must first define and prepare for what the construction industry will look like after the crisis."
In other words, McKinsey argues the first movers that formulate a solid digital strategy will ultimately be the most resilient. And to do that, you need to recognize the key components for establishing a more responsive and resilient supply chain.
Developing End-to-End Visibility
Construction is the biggest industry in the world, representing 13% of global GDP. But it is slow to disrupt.
According to another report from McKinsey, construction has seen a “meagre productivity growth of 1% annually for the past two decades. Time and cost overruns are the norm, and overall earnings before interest and taxes (EBIT) are only around 5% despite the presence of significant risk in the industry."
Inefficient supply chains are a significant threat to productivity, and to profits. A day or two's delay in critical materials can cost hundreds of thousands of dollars in underutilized equipment. It can also cost customers.
End-to-end visibility means tracking and collecting data from procuring materials to customer delivery. LBM businesses can use end-to-end visibility to identify potential bottlenecks and run "what-if" scenarios in real-time. According to EY research, improving visibility can help supply chains save 20% to 25% and reduce inventory while improving service.
Technology is the key to unlocking end-to-end visibility. With the right platform, teams across verticals and business areas can actively play a role in optimizing your supply chain.
Identify Critical Building Materials, and Focus There
The Internet of Things means our sensor-connected world is generating an ever-increasing amount of data to be analyzed. According to forecasts from Seagate and IDC, the global data sphere will reach 175 zettabytes by 2025. Connected LBM businesses can use up-to-the-minute metrics on what materials they have on hand. Plus see replenishment lead-time and order fill rate. Identifying demand early allows first movers to get a higher than average inventory of critical materials. This gives them a competitive advantage to avert bottlenecks in the supply chain.
Customer-specific data can also help you be more responsive to demand for specialty products, giving you the ability to get your customers what they need when and where they need it. It's an opportunity to go beyond just shoring-up your own supply chain and pass that resilience to your customers as well.
Use Data to Look for Alternate Suppliers
The days of having one material supplier are gone.
One of the most disruptive changes to the LBM industry this past year has been a growing shift from a one- or two-supplier system towards a stable of alternatives ready to step in.
“The days of having one material supplier are gone," Joe Natarelli, leader of the national construction industry practice at accounting firm Marcum, recently told Construction Dive. “We're seeing clients setting up three separate suppliers, in different geographic locations, where in the past they may have had just one or two. Some are even getting as many as five in place."
By combining end-to-end visibility of your supply chains with an ability to identify critical materials for clients, you can use technology to map out multiple supply chain scenarios and have alternates on hand at any pressure points to make you more resilient.
Become a Leader
There's no question—tech-enabled LBM is the future. Supply chain volatility can't be completely eliminated. But you can use technology to see shifts, anticipate changes to supply and demand, and make the changes necessary to pass their resilience onto their customers. Taking this approach will free-up your business to focus on service as opposed to reacting to volatility.
The current market dynamics have created an opportunity for LBM businesses. Now is the time to become a tech-forward leader in the industry.
The current market dynamics have created an opportunity for LBM businesses. Now is the time to become a tech-forward leader in the industry. Learn how to optimize your supply chain and become a first mover with our free eBook, "Prosper Alongside Growing Builder Confidence."
