Supply chain issues have gained national headlines for their impact on the economy and pricing and remain top issues for both builders and supply-side dealers. Among the ongoing supply chain constraints, communication and trust have become more important to builders and dealers, according to Mike Farmer, president of commercial solutions at Builders FirstSource, and Janet Benavidez, national vice president of sales and marketing for Shea Homes.
“We’re doing things a lot differently today than we were three to five years ago that require people to trust we’re trying to get to the same outcome and work together to solve challenges collectively and not to our own individual advantages,” Farmer said during Zonda’s “Building Product Materials Webinar,” hosted by Zonda chief economist Ali Wolf.
In addition to constant communication with partners, Benavidez said transparency with trades has become especially important among supply constraints and labor issues.
“I think the better we can communicate with our partners and provide them the opportunity to let us know constraints that they may have in hitting time frames is crucial,” Benavidez said. “I think the biggest challenge [currently] is when our trades try to hit their commitment knowing that they can’t and we’re waiting for a certain product or feature that needs to be installed. Then we find out at the last minute that the product [or feature] isn’t available.”
Workarounds and Substitutions
The challenges on the supply side have forced companies to get creative in their sourcing of products as well as look for workarounds to help overcome common issues related to timeline delays. Benavidez said Shea Homes has bought appliances directly from retailers such as Best Buy, installed temporary “loaner” appliances into homes to meet timelines, and shared products across divisions.
“It’s a challenge because we’re seeing so many unforeseen supply shortages that even with the best laid out plans, we’re still seeing those hiccups,” Benavidez said. “Where it used to take six to eight months to build a home, now it takes eight to 10 months. I think trying to get an early start when we can and where we have the ability to start those homes early on is key—just to try and avoid that last-minute rush of trying to wait on supply.”
Farmer said the industry as a whole has been forced to do more advanced planning to avoid last-minute rushes for products or delivering products at a time when they cannot be installed. Additionally, Farmer said the willingness to change out products or substitute products has been “critical” in a year where supply has been so tight.
“The builder community has become more open about changing different products. I’ve had a lot of conversations about limiting options for the end user as well so they can simplify the supply chain and we can be more repeatable with our manufacturers to bring product in,” Farmer said. “I don’t know how long that trend will continue, but I think it’s a good opportunity to look for synergies up and down the supply chain from that standpoint.”
Some of those synergies long term could include reducing SKUs and removing items with low take rates from selection catalogs. Benavidez said there has been a shift in consumer sentiment that has placed less importance on customization of every single feature inside a home. Customers still desire the ability to customize key areas, such as cabinets, countertops, and flooring, but are more willing to sacrifice personalization in other areas of the home. Shea Homes is beginning the process of reducing its structural options in its San Diego market as part of its efforts to reduce SKUs.
“I’d like to think this is the new normal because I think this is one of the ways we can continue to keep housing prices down,” Farmer said. “The inflation we’ve seen over the past several years, we’re going to have to find ways to be efficient in the industry. I think if we can reduce options in areas where no one really cares and it’s less of an issue to the buyer, to improve the inventory and the supply chain, we should continue to do that.”
Despite ongoing supply and labor issues, Zonda forecasts single-family starts will increase 5% and new-home sales will increase 12.5% in 2022. At Shea Homes, Benavidez said the company is expecting an increase in active communities of about 15% to 20%, with a small portion of the growth attributable to carryovers from 2021.
”I’m expecting moderate to solid growth next year; I think the supply chain will continue to be a challenge. We’re smarter going into 2022 than we were going into this year,” Farmer said. “There were a lot of things that happened this year that none of us had ever seen with just the amount of product outages and the significant run-up of prices. I think we’ll handle it a little bit differently next year."