No matter what role you play in the construction industry, you are certainly facing the woes of disruptions in the supply chain. Spurred by the pandemic, this ongoing challenge has many contractors frustrated and wondering “When will it end?”
From manufacturers and distributors to contractors and installers, everyone is riding this uncertain up and down (mostly down) ride in the supply chain. The lack of building products is a global issue, and the construction industry isn’t the only industry being impacted. In addition to delays and uncertain timelines for projects, the disruption is causing major pains to the wallet with increased costs for construction materials. In fact, according to the National Association of Home Builders, the recent rise in lumber prices amounted to more than an $18,500 increase on the average new single-family home, and $7,300 has been added to the market value of the typical new multi-family home.
To add fuel to the fire, a report from the U.S Chamber of Commerce claimed that 92% of contractors report difficulty finding workers, and of those, 42% have turned down work and projects due to a lack of skilled workers. For many contractors, lead time on materials is pushing jobs back up to eight to 12 months or more, and it can be a cause of both confusion and frustration for clients. For this reason, it is critical that contractors clearly communicate with clients about delays and effectively manage expectations, as well as adjust their operations and adapt to remain profitable. Here are a few things to keep in mind as you navigate the challenges posed by the supply shortage:
Plan Ahead – For existing clients, it is vital to inform them of the importance of planning ahead. With the rise in demand and cost of materials, delays in receiving materials are only getting lengthier; the longer they wait to make a decision, the greater the delay may be to begin and complete the job. By planning projects earlier than expected, they may be able to decrease the wait time.
Be Flexible – While supply chain issues are impacting the industry across the board, there are some aspects of business that may be more impacted than others. Although we are facing an inevitable domino effect, there may be some parts of your projects and operations that you can alter to make use of what is actually available. By being more flexible in your specifications and exploring options with multiple manufacturers, you can find new opportunities, as well as strengthen communications and relationships with trade partners.
Forecast Cash Flow – When conducting cash flow projections, it is wise to factor in multiple scenarios; under uncertain conditions like the industry faces today, it would be beneficial to run three or more scenarios to be prepared to pivot if needed. When forecasting cash flow, it is vital to base reports on real data, not guesses based on opinion or personal experience. To make informed decisions, start with information pulled from budgeting and risk management activities, as well as information provided by suppliers to determine optimal times to buy materials based on pricing.
Make it Temporary – Some clients may have a need for immediate repairs that can’t wait for all materials to be available. For this reason, it is important to offer a variety of temporary solutions until the project can commence. For example, if a client is in desperate need of a re-roof due to immediate damage, offer repairs and remedies that you can do now to keep their roof watertight for rainy season and protected until the full scope of services can be met.
Although contractors cannot control the supply chain, they can control how they manage client expectations, collaborate with suppliers, and manage operational expenses. While the last couple of years have forced contractors to evolve and make major changes to how they operate, those changes are part of a larger evolution in the industry that will strengthen businesses to better handle “the unexpected” in the future.
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