How Building Product Manufacturers Can Bounce Back in 2021
COVID-19 has been a take-no-prisoners virus. In mere months, thousands of businesses have folded in a variety of industries or are on the verge of closing. Some sectors have proven to be more resilient than others though. For instance, while a number of economists anticipated real estate would likely be hard-hit, the combination of solid economic fundamentals as well as record-low interest rates have kept the industry humming. Indeed, the Pending Home Sales Index reached nearly 9% in August and the existing-home sales topped a seasonally adjusted annual rate of 6 million during the same period, according to the latest estimates from the National Association of Realtors. Engaged buyers and highly limited inventory have kept builders hard at work nationwide.
Despite the residential housing sector’s strength, 2020 will likely be remembered as a down year for developers.
When 2020 officially concludes, the construction industry in the U.S. is anticipated to be 6.5% smaller than it was when the year began. That’s according to a recent report from ResearchandMarkets.com. If conditions continue at their present pace, the sector is poised to contract an additional 2% come 2021.
Coronavirus disruption in construction
The coronavirus is largely responsible. With over 7 million Americans infected by the strain and a variety of social distancing measures installed by states as well as employers, numerous projects that were slated to take place have been delayed, rescheduled, or started but with far fewer workers than initially anticipated. In some instances, this has been due to laborers who were sick; in others, developers were limited to having only so many people on job sites at once.
“In September, wood used for framing reached $950 per thousand board feet.”
Complicating matters further is the price of home-building materials, especially lumber. Forestry and logging companies have encountered their own struggles with the exploration and extraction of trees due to COVID. This, in turn, has led to higher purchase prices for developers. For example, in September, wood used for framing reached $950 per thousand board feet, according to the National Association of Builders. Tracing back to April, lumber prices in the U.S. are up 120%, on average. As a result of this, the cost of buying for would-be homeowners has risen roughly $16,000, NAHB estimates, stretching the finances of many budget-minded families too thinly.
What can building product manufacturers do to bounce back in 2021? Here are a few suggestions:
Embrace the new business as usual
Perhaps the biggest frustration of the COVID-19 crisis is the uncertainty of it all, as no one seems to know when advanced safety measures to slow the spread will end. While most parts of the country now allow laborers to be on the job — whereas before they were off-limits — roughly three-quarters of building product manufacturers believe COVID-19 restrictions will continue for another year, according to polling done by Construction Dive. More specifically, 88% expect social distancing and personal protective gear will be the norm for the long term.
As a result of this, businesses should try to acclimate themselves to the reality of having fewer hands. Whether it’s done by leveraging automation technology to tackle repeatable processes, or streamlining production through smarter asset utilization, building product manufacturers will need to ramp up their process efficiencies so workers can execute more effectively.
Prepare and source even further in advance
In addition to lumber being more expensive to purchase, it’s also harder to come by. As Newsweek reported earlier this summer, COVID-19 restrictions forced numerous lumber mills across the U.S. to cut back on their production, both for softwood lumber and treated lumber.
When the time comes to obtain material for a scheduled project, manufacturers may want to stock up. This is something that Jeffrey Luter of Fulcrum Associates has done and plans on continuing. Speaking to New Hampshire Business Review, Luter noted his company has extended its purchasing window rather considerably.
“Items that we would source three to four weeks before they are needed on the job site are being ordered 10-12 weeks in advance,” Luter explained.
Adopting a more forward-looking strategy can enable building product manufacturers to better prepare for fluctuations in the supply chain, which are forecast to continue in 2021.
Keep crew safe and well
With many building product manufacturers operating with skeleton crews, the ongoing productivity of each individual becomes that much more important. However, with construction routinely being among the top industries for on-the-job industries, developers must prioritize the protection of all involved. This includes keeping laborers protected from infection. Tom Sullivan of Sullivan Construction told NHBR this has been an ongoing process throughout the pandemic.
“We take the temperature every day of everybody who comes on-site,” Sullivan said. “We apply social distancing to our projects. We have a mask requirement for all people on our job sites — including people from our group and myself. We want to make sure nobody gets sick. Our objective is to keep everybody healthy and use the latest and greatest protocols out there to protect everyone.”
Prioritize supply chain management
In addition to fully operational work crews, builders also require the materials to build. But as previously noted, key materials and equipment to development are either in short supply, virtually impossible to find or expensive to purchase. As a result, building products manufacturers should aim to optimize their supply chains as proactively as they can. This includes diversifying where they get their materials from so firms have more options and places to go when suppliers are out of stock. Strategic sourcing can help in this regard.
Building product manufacturers may also want to perform their own research to see where it’s possible to use one material in place of another. Former NAHB Chairman Randy Noel said certain alternative materials — such as steel — may serve as a sufficient option as a substitute for lumber. As the Steel Market Development Institute points out, steel may prove more cost-effective than wood framing because it won’t warp, split, crack or rot like wood does.
From strategic sourcing to efficiency improvements or cycle time reduction, USC Consulting Group has the solutions that can help your business find it’s footing in the building products landscape — in more ways than one. Contact us today to learn how we can help you be more efficient in your operations.