September 30, 2022

John Perna operates Hamilton Building Supply Company in New Jersey, a company that serves local builders and remodelers and that has seen double digit growth in the past year.

Like the rest of the country, New Jersey is experiencing a hot housing market. And, also like the rest of the country, it isn’t without some major challenges.

“We’re a growing company and want to grow further,” Perna said during a panel at a recent conference for building product dealers in Washington DC. “Right now, we are held back by capital equipment. We have two trucks on order. We have been waiting nine months for one and a full year for another.”

The conference hosted the who’s who of the National Lumber and Building Materials Dealers Association, which was host, along with the Hardware + Building Supply Dealer media group.

Mike Reeves is the president at Espy Lumber, another building products provider with two locations in South Carolina, and is experiencing a similar issue. He has had vehicles on order for more than a year, and now has to adjust because one of the orders was recently cancelled. When the vehicles arrive, there will be more issues to address.

Perna has had to add a delivery fee on orders because the price of fuel has gone up so much in recent months.

Reeves said that there isn’t a day that goes by that Espy isn’t getting a new price increase from a vendor. Similar to Perna, he’s also trying to figure out what to do with surcharges on fuel and if the company should absorb them or how or if it should pass them along to customers.

Mounting Labor Challenges

These are just the surface of the challenges that building product suppliers are experiencing across the country.

Scott Yates is president at Denver Lumber and is wrestling with finding and keeping staff. He has offered employees a 12% bonus just as a reward for showing up as scheduled, yet that isn’t doing the trick. So, he continues to brainstorm with his staff on alternative ways to retain staff, offering housing is even in the consideration set.

Stephen Sallah, is the president and CEO at member-owned buying group LBM Advantage, and is doing “stay interviews” for employees to learn how to improve retention. More than 80% of the staff took the survey that helped leadership learn about risks, desires, motivators, and de-motivators.

A big take away from the survey was that a majority of associates wanted to continue remote work in some capacity, which Sallah’s team is implementing. The survey and the quick response are part of what made the company a best place to work in New York state in the past and also what drives its focus on serving its more than 1,000 members as well.

With a focus on both employee and customer retention, Hamilton Building Supply is working on creating a career path within the organization, emphasizing programs for truckers who are the first and last face that a customer sees on the job site.

Killer Product Lines

Hands down dealers experience the most challenges from kitchen and bath products.

“Kitchen is by far the most challenging from the lead time perspective, damage, back orders, missing parts,” said Mark Hopkins, who serves as the COO at Maine-based Hancock Lumber Company. “It requires a major up-front contract with customers. Basically, stating that there is a high likelihood that something will go wrong, but we are here to support you. We try to set the stage that we are going to take care of it if something doesn’t come in.”

To further address the issue, Hancock Lumber hired someone specifically to manage warranty issues on kitchen cabinets and baths, which the buyer is made aware of as an important part of the sales process.

Perna’s company is waiting 23 weeks for kitchen cabinets to come in, although he also finds that engineered wood has been equally challenging.

Brand loyalty in the industry is preventing some replacements. Builders who are true to the brands they have used for years cannot imagine switching to an alternative. On top of that, some replacement suppliers aren’t even taking on new orders.

With product hard to come by, dealers are seizing on opportunities to get their fair share.

“If we normally buy two trucks, we’re now buying four trucks so that we have what we need,” said Reeves. “Managing down cycle is as hard as when it is going up—it’s as difficult if not more difficult.”

Regardless, most dealers are starting to carry more inventory and breaking all the traditional rules on inventory turns that they have diligently lived by for years.

Hopkins doesn’t like to transfer inventory between the company’s 11 lumberyards, but has had to do more of that recently to make sure that delays don’t lead to back charges.

Since Hamilton Building Supply only has one location, Perna is actually creating strategic alliances with competitors to collaborate in critical situations.

“We are always balancing inventory position against cash position,” Perna said. “We have to be very cautious and take special orders on a case-by-case basis. We also emphasize alternative product solutions and we are doing two estimates with alternatives so that we can be prepared if there is a shortage.”

Michael Collins, serves as the managing director at Chicago-based investment banking group Building Industry Advisors and works with dozens of dealers on a daily basis. He sees companies that companies are starting to be proactive by reaching out to customers with ready to ship orders to see if the project is actually ready for the order or has some flexibility on timing.

“With all trade contractors running at full capacity and often behind schedule, there is often a window during which a shipment of materials would sit on a job site waiting for the next step of the project,” Collins said. “By confirming timing with the customer, distributors can divert such orders to customers where the timing need is greater and fill the time-flexible customer’s order from the next shipment. Such delivery timing changes require an extremely high level of customer trust in the distributor, but they can go a long way toward alleviating a supply chain challenge.”

Reeves also has concerns about bigger companies getting larger and competing with his two-location operation. There are many larger groups buying up independents, and as they get larger they could very likely take priority over smaller independents like Espy for deliveries.

Coping Mechanisms

Across the board, everyone on the panel, in addition to other industry leaders, kept referring to the human element of the industry. They agree that successfully managing these issues is based on open, frequent communications built on trust and authenticity.

“It’s more of a people business than ever,” Sallah said. “A lot has changed and probably permanently. We are communicating more with members and advising differently than we did in the past so that they have stock. Dealers are being more conservative, no one is taking on new customers.”

Hopkins says that “super” communication is helping.

“We educate our customers so that they are talking to their customers,” he said. “We think our customers should be as profitable as ever. Dealers are doing well, so our customers should be as well. Hancock is also trying to be the best customer that we can be for our suppliers so that they protect us and make sure they give us product and they shut off small dealers. We have strategized to go all in with some.”

Perna says that Hamilton is over communicating by putting out a newsletter twice per week because that’s how often updates are coming at them.

Reeves also emphasizes the value of being direct and honest.

“You may order a window package and you tell [a customer] 16 weeks, and the manufacturer then extends the lead time, then you have to go back to the customer and explain to them again that it just went from 16 to 20 weeks,” said Reeves.

His company is going so far as to have one-on-one meetings with customers to help them understand what is happening in the market and to give them advice, including going cost-plus on projects.

Business Is Good

While the challenges are plenty, business is also plenty. These smart suppliers are lining things up to be profitable well into the future.

“Innovation is about keeping customers profitable,” Perna said. “As a dealer, we are trying to put mechanisms in place like buying programs that put more profit to our customer’s bottom line. We have actually started getting more wallet share.”

Reeves agrees. His diligence and honesty are paying off. The frequent communications with his customers has allowed his team to create a closer relationship with them than ever before, leading to business on the books well into 2023.

Hopkins said that Hancock isn’t taking on new customers with just one order, but is looking for long term relationships. And, to strengthen that position, the company also is investing in new technology, like apps and ecommerce sites, for the professionals it serves to be more efficient.

While technology will be front and center in helping solve supply chain issues, Sallah advises his members to stay nimble and protect balance sheets because there is more change to come.

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