By Neil Thomas
For some time now our managing director at H+H, Mark Oliver, has been speaking about the need for better planning and the benefits of long-term working partnerships within the construction sector. This is something, in my role working with major house builders on a day-to-day basis, that I am now seeing an urgent need for.
Back in 2013 when house building took off again after the recession, everyone, with very few exceptions, was caught off guard. What followed was a period of slight chaos – the demand for new houses increased but builders struggled to source and buy the materials needed to build them. Manufacturers were playing catch-up. Some managed to do so without too many issues but others are still feeling the effects two years later.
Despite the chaos everyone was jubilant, Britain was building again, but there were evident cracks across the sector that had appeared as a result of the drastic cost cutting measures that had been put in place during the previous five years when companies were in survival mode.
Manufacturers had reduced capacity in factories, house builders had reduced head count and some trades people had even left the industry completely in favour of a job with a more stable income, rather than the peaks and troughs that occur in house building.
Fast forward two years and we find ourselves in a much more stable environment. The dramatic peaks have evened out somewhat and thankfully there have been no intense troughs either. This is a good situation, particularly for manufacturers, because it allows for better production and capacity planning.
However, the bad habits picked up during the recession and the practices that ensued have meant that planning is one of the cracks that became very clear in 2013 and still hasn’t been properly repaired. You could argue that it is a crack that has been papered over for the short term with intermediary measures but that will be of little use when the entirety of the market resumes full working order over the next couple of years.
Going back to when we had excess capacity pre-2013, sites could expect to take delivery of materials only 24 to 48 hours after placing the order. This has not been the case since activity levels ramped up following the Help to Buy stimulant with volumes getting back to ‘normal’ pre-recession levels.
Since the supply and demand hiccup in 2013, we have worked with our customers to develop forward ordering schedules that work for all parties. We came to the agreement that companies would give us a month’s notice when ordering, which would give us sufficient time to plan both the production and delivery of our customers’ requirements.
This worked well for a while but in recent months these plans and schedules have slipped.
We are still receiving orders as planned but by the middle of the month up to 20% of these orders are being cancelled or postponed. We know that this is a problem for other manufacturers.
For companies that are manufacturing made-to-measure products these postponements mean that they have to hold stock of products that sites are not ready to take as they cannot be sold to another customer. In the case of cancellations, the result is production capacity has been tied up and cannot be re-allocated to someone who does have the need.
The knock-on effects of this reach far beyond the boundaries of our yards and factories; in fact they even out reach the construction sector all together.
The most immediate impact is on the haulage companies. At the start of the month we schedule in the loads that are to be delivered based on the orders we receive, two weeks later we find ourselves in a position whereby we have to call and cancel or amend the deliveries. This has a significant impact on their businesses, especially if the cancellations result in them having idle trucks at a time when they know there is strong demand for them. If these practises continue it will not be long before relationships are damaged and the haulage industry begins to look less favourably on working with the construction sector.
Looking at the longer term, there is real threat that if the industry continues to be so poor at planning its material purchases, we will experience a repeat of the supply and demand imbalances from 2013. At the moment activity in the refurb, maintenance and improvement (RMI) market is still below the level it was pre-recession and as such the new build sector doesn’t have to compete with it for the supply of products and materials.
Unlike the new build market, the RMI sector hasn’t had the boosts from government intervention that new house building has received and, as a consequence, it is still waiting to recover. When, and it is when, not if, the RMI market returns to full strength the volume of product being supplied to merchant yards will increase and manufacturers will need to both produce and deliver more product.
But not all manufacturers will be able to do this as quickly as might be needed, bringing about the possibility that we will see the return of panic buying that we experienced in 2013.
Other industries deal with this problem very differently. Airlines for example, routinely over book aircrafts with the knowledge that some customers will cancel last minute or simply not turn up for a flight. In the event that all of the customers who booked actually turn up they are simply told there isn’t enough room on the plane and some are asked to wait until a seat becomes available on another flight.
So far, building product manufacturers haven’t taken this approach. H+H is staying loyal to its long term customers and does not want to damage relationships by implementing sanctions for cancelled orders. We like being able to work flexibly but it cannot go on like this forever, because if we do the whole market will suffer.
We understand why we are in this situation; we even recognise that manufacturers are partly to blame because during times of excess capacity we were able to offer very short lead times. But now that demand and supply are more closely matched, it is very important that customers help suppliers to improve their service.
In fairness to our customers we understand that the number of managerial personnel on sites is below pre-recessions levels and more and more pressure is being put on the site managers who, not having experiences the need to plan in recent years, perhaps don’t have the skills or tools to do so. Some house builders are now beginning to address this with training and technology which is encouraging.
Another question I have is whether the uneven demand that results from builders chasing year end and half-year completions creates more problems than benefits. Manufacturers produce throughout the year and would prefer to supply product evenly throughout the year which would also be good for the haulage industry. Building evenly throughout the year could benefit our house builders if it enables them to complete units in a timely manner resulting in fewer pre and post snagging costs.
Throughout the recession we all worked together, our customers stayed loyal to us and we repaid this loyalty by servicing them to a high level. We don’t want this to change and we don’t want the recovery to be damaged in any way, which is why we need better planning.
This crack needs to be repaired properly otherwise the paper that is currently covering it will start to peel off in the not too distant future.