The good news we're all clinging to these days is that long-term demand for housing will be strong for many years to come. Harvard University's Joint Center for Housing Studies report predicts that 1.3 million new households will form each year for the next 10 years. Although this is positive fundamental news for the entire home-building supply chain of builders, installers, distributors, and manufacturers, in the short term, expect some disruptions.
For the past few years, as prices increased and some material shortages rolled down the supply chain, management's focus has been more on resource allocation than marketing and sales. Forecasting sales was easy. We sold what we made. But now that the market for new construction has turned, supply chain issues are different and we need to change the tools we use to cope with them quickly.
Suppliers are only now beginning to feel the effects of falling home sales and buyers cancelling contracts as builders reduce starts and cancel new projects to bring inventory under control. Even if sales level off, or start to increase again, the demand for materials and labor will still suffer until the unsold inventory wanes.
What are the best ways to cope with these rapid changes in demand? The answer is to keep an eye on every link of the supply chain, from end to end, and remember that the new-home supply chain ends with the buyer, not the builder. If the consumer is not buying, builders, installers, dealers, distributors, and manufacturers won't be selling. That's the advance warning you need to prepare for a changing marketplace.
The first step to supply chain discovery is to start talking with every link in the supply chain of demand for your products, including the end users, to scout for advance warning of changes. Regularly examine builders' press releases, quarterly reports, and analyst calls. A look into the future for big builders at the recent Credit Suisse-Hanley Wood-sponsored investor forum, most of the builders there reported sales slowdowns of 30 percent plus. They also were reporting cancellation rates in the 30 percent range, with some at 40 percent. Given these two points, we know that starts for these builders will decrease dramatically.
Now is the time to plan accordingly. And keep your ear to the ground. In our industry right now, you can't afford not to listen carefully.
On another note, for builders, no single part of the construction process has more potential effect on customer satisfaction, cycle time, and cost reduction than the framing package. Find out what the top builders and industry experts are doing with framing and design to build their homes at our session, “Smarter, Faster, and Better,” at the BIG BUILDER '06 conference, Nov. 1–3, Mandalay Bay Hotel in Las Vegas. –Michael Hartnett, vice president, Hanley Wood Market Intelligence. Email: firstname.lastname@example.org