What are the Benefits of Long-Term Partnerships? by Mark Oliver
Twelve months ago no one was predicting the significant increase in new housing starts that shocked the industry in 2013. We entered the year cautiously optimistic expecting a modest 3 per cent increase in new housing starts and after a disappointing first quarter no one could be certain what the rest of the year would hold.
The final figures are yet to be published but it is commonly presumed that housing starts for 2013 will be around 138,000; an increase of circa 16.5 per cent on 2012.
This continual sharp rise in new build projects brought with it a dramatic increase in product demand and a subsequent shortage of materials. Despite many manufacturers ramping up to operate at, or near, full capacity, several merchants and builders are still struggling to purchase bricks, blocks and other materials and this looks set to continue, at least for the first part of this year. It had been thought that the market would settle during the third and fourth quarters of last year but it didn’t, instead it continued to thrive thanks to the ongoing government support in the way of Help to Buy and the weather; the good summer weather lasting long into autumn and the winter generally being above average in terms of temperatures.
As far back as April last year H+H began adding extra shifts at our production plants, recruiting more manufacturing and sales order processing personnel and increasing the overall speed of production. However, facing the fear of a product shortage, many of our customers’ instinctive reaction was to double their order quantity and build up their stock levels. This did not aid the situation and instead made an already precarious situation worse.
As you would expect, we honoured our contractual commitments throughout the year and prioritised those customers who stayed loyal to us during the economic slump; even when presented with potentially highly rewarding new deals from companies in urgent need of immediate supplies.
The majority of the customers we have continued 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 country is in the economic cycle; whether it is the highs of 2005 or the lows of 2009, we have stayed loyal to them and vice-versa. Partnerships shouldn’t be and are not market dependent.
But, not everyone shares this view. Back when times were particularly hard and the lack of sustained demand led H+H to close one of its factories, a number of builders and merchants only wanted short-term contracts as they sought to exploit the uneven balance between supply and demand. During the last five years many customers became habituated in terms of how they ordered – it was often left to the last minute but suppliers supplied the stock regardless. Builders and merchants are now finding suppliers unable or less willing to operate this way.
There is now a need for customers as well as suppliers to forecast and forward order if they want competitive prices and / or certainty of supply. This is something that has become slightly alien within the industry in recent years. Several builders and merchants that were happy to work with suppliers on a sporadic basis are now looking for long-term framework agreements and the level of commitment that comes with them. However, like many manufacturers, H+H is already committed to those companies that have been partners through the rough and the smooth. The consequence of this is that some of those players who exploited the situation when the industry was in the doldrums now have to temporarily rely on imported products at inflated prices.
The benefits of long-term agreements are much more wide spread than stock availability; good partnerships drive collaboration and innovation. If both parties know that they will be working together for the long-run they can be confident that any investment in innovation that delivers benefits will be captured by those in the agreement.
Collaborative working between supply chain partners isn’t just about large scale investment projects. Long-term partnerships enable the varying parties to work together to re-engineer designs, improve existing product / system offerings and eliminate waste from the construction process.
We work with builders and merchants of all sizes and these close partnerships have enabled us to improve the overall application of our products. We have achieved greater levels of air tightness, faster speed of build and reduced waste by working collaboratively on new solutions. With a framework agreement we are re-assured that ideas we contribute are not going to be passed on to an alternative supplier who is offering a lower price, in part because they don’t bear the costs of investing in innovation.
If the varying forecasts prove correct then the construction industry will be growing from now until 2020. This is an excellent opportunity for innovation and collaborative working on all levels and on all sizes of projects to take hold, safe in the knowledge that this type of supply chain partnership is formed on a basis of mutual understanding, respect and a desire to work together in a way that benefits all parties.