Coping with Rising Product Demand
Mark Oliver, managing director at H+H discusses the upturn of costs and product demand.
Rewind back to January 2013 and there was an air of cautious optimism surrounding the industry, but no one was expecting anything dramatic. As a company we forecast a modest 3 per cent increase in new housing starts.
Come March, this cautious optimism began to wane after the country had been besieged with bad weather; the year ahead was not looking promising. Our sales in the first quarter of 2013 were lower than 2012.
We were wrong…
The NHBC’s final figures for last year showed a 28 per cent year on year increase in new homes being registered. A total of 133,670 new houses were registered making 2013 the busiest year for house building since 2007. This sharp rise in new build projects brought with it more demand for product and as a result, a temporary shortage of materials across the entire industry. Whilst we were all aware of the Help to Buy initiative, we were caught by surprise as to the rate of success it achieved. Everyone from manufacturers to builders and merchants found themselves in challenging situations, dealing with frustrated customers. This was not a situation anyone imagined being in, certainly not in 2013.
Like many other manufacturers we thought the market would settle during quarters three and four but it didn’t. In fact it was February this year before we saw any slow-down in new home registrations. Even then, in the grand scheme of things it wasn’t much of a slow-down. Year on year it was a decrease of 1,054 registrations but it didn’t dent the overall stats for December – February; new home registrations were still up 14 per cent on the same period last year. February’s decrease can easily be blamed on the weather although now that the sun has appeared and the dark clouds of winter are vanishing, the numbers look set to steadily increase once again, especially now that there is more certainty around the longevity of the Help to Buy scheme, thanks to the Government’s budget announcement. For an industry that has been on its knees since 2008 this is excellent news, but only if those who build the houses can actually get their hands on the materials they need.
I’m confident that manufacturers up and down the country, H+H included, are now working at, or near to, full capacity. Over a year ago, as soon as we started to notice a rise in demand for our Celcon Blocks, we ramped up production at our plants, we recruited more manufacturing and sales order processing personnel and now have a tight order fulfilment schedule in place which will enable us to provide our loyal customers with the level of service they expect. However, we still face the issue that many of our customers’ have been actively building up their own stock levels over the past year. This aggravated the situation last year as many customers were doubling their order quantities out of fear of not getting product. The knock-on effect this year is that we don’t fully know what our customers have in their yards or sites, or special storage areas that some have creates. This makes it difficult to forecast for the latter parts of the year.
Last year we were very focused on meeting out contractual commitments and prioritised the customers who had stayed loyal to us during the economic slump; even when presented with potentially lucrative new deals from companies in desperate need of supplies. The majority of the customers we continue to supply are those with whom we have long-term trading relationships. Over the years we have built partnerships with these companies that run deeper than a simple supplier/customer relationship. Some of these customers have been working with us for almost twenty years. Regardless of where the economy has been in the cycle; whether it is the highs of 2005 or the lows of 2009, we have stayed loyal to each other. Partnerships shouldn’t be market dependent.
Frustratingly though, not everyone shares this view point. Back when times were tough and H+H was forced to close one of its factories, a number of builders and merchants sought to exploit the uneven balance between supply and demand. They only wanted short term contracts and next day delivery. There was little interest in forecasting and forward-ordering. Loyalty did not exist, but manufacturers delivered the materials because they needed the volume.Ironically, many of these customers are now looking for the stability of long-term framework agreements, similar to those we have in place with our loyal customer base. However, like many of our counterparts in the industry, H+H is already committed to those companies that have stuck with us through the rough and the smooth.
As we look forward to quarters three and four in 2014, we are optimistic that these long-term partnerships will continue to work well. We now have order schedules in place for all of our customers; both parties know when the orders will be due and what quantities will be delivered. This has enabled us to plan our own stock holding, so that we can proceed with the maintenance programmes at our factories. For the first time in years, we are in a position where we can invest in our factories and we will be doing this during the summer. None of our customers will be adversely affected by this as we already have product in our yards ready to go to customers during the maintenance period.
If in January 2013 someone had told me H+H and the industry as a whole would be in the position it is in now, my cautious optimism would have turned to extreme delight. However, as an industry we now have a responsibility to make sure we all work together to ensure we can and do build the houses that the country needs.