Home Featured Real Issues. Real Answers. The Materials Shortage

Real Issues. Real Answers. The Materials Shortage

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Real Issues. Real Answers. The Materials Shortage
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The year started with strong expectations for building and remodeling. Then the pandemic hit, and no one knew what to expect. In fact, many lumber dealers tightened their belts and prepared for the worst. But if 2020 has taught us anything, it’s to prepare for the most likely outcome, but also anticipate exactly the opposite scenario, just in case. So by 2020 logic, that means record sales amidst a global pandemic, right? Go figure, but that’s what happened for many in the industry.

The result has been serious material shortages in parts of the market. We were contacted by an LBM dealer facing some shortages in his area and he asked if others in the industry had experienced the same thing, and if so, how they were handling it.

So we posed that question to our loyal readership in this month’s Real Issues. Real Answers. survey. Thanks to the 442 dealers who responded to our survey seeking solutions to the materials shortage.

Question 1:

Real Issue Materials shortage

As is evident in the graph, 62% of respondents are unable to find all the lumber and building materials that their customers require. 

Question 2:

Real Issues material shortage chart 2

Pressure treated wood is the most sought-after material. According to our survey, nearly 80% of dealers are experiencing trouble sourcing these materials. Dimensional lumber isn’t far behind, as 73% of dealers indicated difficulties obtaining what their customers require. Plywood/OSB and decking also make up significant shortages, with around 60% of respondents indicating shortages of these materials.

Question 3: What advice do you have for this dealer?

Responses from LBM dealers and specialty distributors

“We’ve experienced products being on allocation before, but nothing like this—serious shortages of materials in multiple categories. Our sales staff now has to not only sell items that we have, but also sell material that we don’t have. Convincing customers to pre-order and wait for extended delivery times is an art in itself. I know of other dealers who are frustrated, and they feel that the manufacturers fell down on this one and folded supply tents too early. Now that we’re in this situation, how are we supposed to navigate this with our customers, since no one seems to know when it’s going to end?”

“Order material needs as best you can. You cannot run your business from an empty wagon. Bite the bullet on price, but get your sell prices changed to reflect current replacement costs and keep them updated. Everyone is in the same situation. Make sure your customers are aware of what’s going on and order your special orders well in advance.”

“I keep reminding my customers of the long lead times.”

“We have been more proactive about purchasing. I am relying on product history and trying to buy what I can even if it is 3-4 weeks out. I think we may have to substitute plywood for OSB at some point. Most of our problems are with commodity items. We are also being careful not to be left with too much expensive inventory when this does correct itself.”

“We are using alternatives like Brazilian CD, no name decking from people trying to break into a market controlled by a few, and alternative species in framing. In treated, we’re selling 2×10 or 2×12 instead of the requested 2×8, more money but the job gets done.”

“I try to be up front and honest with everyone. Most get it, some think it’s a sham.”

“Solving problems is the key to your organization’s success. Communicate with your customers and team on the front end. Don’t overpromise. We’ve also expanded our number of regular suppliers. We’ve also been able to recommend substitute products in some cases. In some cases we allocate to our customers too. Now more than ever is a time to be creative and if you can solve enough problems you will gain great market share.”

“We’ve always kept a larger inventory, and during this shortage it has worked well for us. We have gotten a lot of business from neighboring lumberyards, customers when they ran out of materials. We are still planning and ordering ahead as we go into fall. We have been out of some things for a short period of time but with other stores to transfer from have been able to cover most things so far. Every day is frustrating, everything takes longer, the list goes on and on. Regular business in the past was so much less work than dealing with the shortages and covid at the same time. I can certainly understand the writer’s frustration with the current situation and everyone else can also.”

“I absolutely hate buying material PTS (priced at time of shipping) but at this point there really is no other option. The bigger question is how long will it last and how hard will it fall when over? We have had several builders stop what they are doing and fully expect this is happening across the country. My answer is just don’t buy anything over 3 weeks out, I would rather be out than have a lot of material $400 over market price. In the end we will all get burned just trying to limit the carnage.”

“There has to be full honesty with the customer. They have to know the situation so that they can make their best decision.”

“Offer as many ‘alternative,’ ‘substitute’ products as possible.”

“Now is a great time to sell products from other manufactures that may not be common to your market.”

“We do not sell something we don’t have. We tell customers that we will order it for them and notify them when it comes in so if they need to they can get it from another source if they have it. We believe in helping our customers get what they need when they need it even if it isn’t from us. Customer service is very important to us as customers remember that we were honest with them and helped them get what they need.”

“The problem is industry wide; advise customers of that and encourage patience. Or, offer alternative materials if available and applicable. I don’t think there is really anything else that can be done.”

“A lot of this is about knowing and working with your customers in the trade. As technology evolves, we need to make sure we are staying ahead of what they need now, and try to anticipate what they are going to need next. The biggest part in any of this is building a relationship where there is great communication about the current state of materials. I know that I am constantly sharing info with the contractors I deal with in regards to market pricing and lead times. If you don’t share that info with your customers in a timely manner, you are doing a disservice to both your business and that of the trades you deal with.”

“Relax, the blame goes to COVID-19 not to you as a dealer, we’re all in the same boat, and as long as you’re doing the best you can, hopefully people will realize you’re not to blame!”

“Order early and often. Understand the lead times by working with your supplier/manufacturer. Share all of this information with your sales team and customers. Everything is available, just takes a little longer for it to arrive. Remind everyone that this will not last forever and the world is not coming to an end (at least I don’t think it is).”

“We show our customers stories from the Wall Street Journal, CNBC, and trade journals to show them this is real and not our fault.”

“Although not like this, I have seen meteoric rises in the past. Most times, they wind up crashing as rapidly as they went up. So, first as a dealer, be careful of taking any long-term positions. And, stay in constant contact with your customers. Second, advise them to do the same—not to look too far into the future. And last, the builder needs to communicate the reality of what’s going on to their contract customers. Keeping it in the arena of full disclosure and ‘no surprises’ usually works true best.”

“Unless your customer has been living under a rock for the last six months, he/she should have no problem understanding that we are living and working in unprecedented times. Unprecedented times call for unprecedented actions. Your responsibility to them is to give 100% to getting them their required supplies in the most expedient way that you can. Do not be afraid, or shy, about shopping around the customers’ requirements from sources/suppliers that you might not ordinarily use. You may be able to obtain them, even at a slightly higher price, from different sources. Explain to your customer that this won’t become standard operating procedure, but it could possibly assist them in getting out of the bind that they’re in. The worst thing that your customer can say is ‘no.’ However, you’ll never know if you don’t make the effort. At least this shows them that you’re trying.”

“The only way I know to do this is to educate the customers on why the shortages are occurring and continually keep in contact with your vendors to check on their inventory status. Try to keep your short-term inventory needs in order so you have inventory in the pipeline. You might have to buy untreated lumber so you can send it to get treated from your treated lumber vendor. This is the only way I know how to get through the extreme shortages we are experiencing.”

“Be patient. We are all in the same boat due to the total disruption of everything due to COVID-19.”

“Communicate as best you can with suppliers and pass on info to customers as you receive it. Keep your customers in the loop and explain as much as possible what the situation is that we are operating in. Under-promise, over-deliver.”

“Demand will dictate. The real loser will be the builders, as they cannot go back and collect the difference from most buyers. It will end as soon as local leaders get a backbone and allow business to operate as they know they can. We all know how to deal with the virus. Less government—more action.”

“Be straight up and communicate clearly the problems by the manufacturer and why: if employees at a certain manufacturing facility are unable to work, say so! If you have tried to get alternate products in their place and failed, say so! Don’t internalize a problem far greater than your company. Get the monkey off your back. Don’t sugarcoat uncertainty, and do your best to get alternatives if available.”

“Everyone is in the same boat. The customer can’t go to the competition and get the same thing faster and cheaper. Be honest with your customer, tell them the lead time and the reality of the situation and never over-promise. It’s uncomfortable telling a customer that they can’t have what they want when they want it, but it’s downright painful to fail your customer on an expectation you set after the fact. Be open, honest, and confident that you are doing the best you can under the circumstance for your customer.”

“Gives time for customers to review plans so that when able to get materials the job should go more smoothly. This is the silver lining.”

“All you can do is ride it out. We figure most of these vendors have ramped up and should be catching up in a month or so. Watch your buyers make sure they are not buying heavy. I have a feeling when this thing tanks it’s going to be fast and you don’t want high cost lumber in your yard when it does.”

“Try being honest! Most, if not all, your builders will appreciate the honesty and integrity of a sales staff who genuinely tell it like it truly is. How many times have they heard what is good for the sales staff but is most likely going to cost them money. Telling the truth about the shortages and advising them ‘not’ to put in that basement at this time might scare the typical order taker, but it will probably endear the seasoned professional to that customer and create a long lasting relationship that is built on trust and mutual respect toward each other. This truly is the time for anyone who wants to make a lasting career in construction sales to take the first step in establishing credentials that will last a lifetime.”

“As always, communication is the key to this situation. Give your current customers as much information as you can without making them panic, they have to pass that info on to their customers also. As far as selling the material you don’t have on ground, you have to project your inventory out quite a bit farther than normal and not be loaded up when the market finally starts to fall. You have to be comfortable knowing you are going to have some inventory that you bought high and sold low!”

“Feature in-stock products and items easily available to you. Time to try alternative products perhaps. I agree manufacturers fell down but complaining will not help. Retailers are at the bottom of the food chain.”

“Be upfront and honest. Under promise and over deliver. Make sure your purchasing department has your full support to explore opportunities you might not have looked at in the past. Purchasing has become a labor of love, so please tell them thank you!”

“You will just have to maneuver through it carefully, hopefully you have partnered up with vendors that will take care of you in good and bad times. This is uncharted water. Communicate with your builders about the supply chain and availability of materials, this will help ease the pain.”

“Sell what you have, substitute where you can. Politely decline orders you cannot fill. If customers can wait, take orders with no delivery date. Customers are aware of the situation, if they cannot be understanding, maybe you don’t want them as a customer.”

“Use the tools available. Computer systems do a decent job projecting your usage and lead times. Reporting on inventory has never been easier. You have to put a lot of weight on what your sales team is telling you of what they have coming. We feel lucky that we were out in front of it. Our balancing act now is what to buy and when so we don’t get stuck with high price wood when it comes down. Lead times never scare us as long as we know them far enough in advance. Longer lead times help your sales staff get out in front of orders earlier and give you notice. We adopted early on into the pandemic—if a vendor told us 4 week lead time we told our customer 8 weeks – 5 week lead times became 10 weeks, 6 weeks became 12 weeks, and so on. We got out in front of it and looked like heroes when the goods arrived on time and early in the eyes of our customers. We pay our bills every Friday and have for years. Invoice comes in today, it will be paid this Friday. We believe that has helped tremendously when sourcing commodity trucks these days. We are proving something we have been doing for years to separate us from our competition in the eyes of our vendors works.”

“Having products available directly from manufacturers is dandy regarding eliminating the extra cost associated with the middle man, but it sure is handy to have inventory to draw from at the distribution layers when supply dwindles. We have been trying to run lean on inventory and order for just in time delivery to increase the return on investment for so long that we created some of this ourselves. I would say that having a diversified inventory including LSL engineered wood and high performance sheathing has helped us to weather the unexpected shortages better than if we were solely seeking commodity materials.”

“Patience and good customer service skills are a must, along with checking in with your vendors for updates so they don’t forget about you.”

“Everyone is in the same boat, no good answers.”

“Pray for an early, hard winter.”

“There is not a golden one-size-fits-all answer here. However, this is still an opportunity for your company to win more orders than your competition. This is the time for your best efforts in very advanced communication, negotiation and creativity among your customers, staff and suppliers. Nobody is likely to get exactly what they want. However, what can they live with and what CAN you do for them that others cannot? Therein lies the real answer to your question.”

“You should have seen it earlier and committed more money to increased inventory. We are having little to moderate issues getting material because it is ordered far in advance of needing it.”

“Continue to keep customers informed of market conditions; assuring them that you and your company are putting their interest in the forefront!”

“The main issue is log supply and the challenges to overcome the harvesting permit process and ecological restrictions. The log supply challenge for the manufacturing of framing lumber is also a log sales created one. The large timber holding companies are still selling and exporting enough #2 saw logs off our West Coast in cubic meters, to keep 72 sawmills operating for one year (supporting 72 communities). It takes about 20 truckloads of logs to run a sawmill for one-day shift. Unfortunately, we no longer have the extra milling capacity due to small sawmills closures over the last 10 years. Also, Canada has closed or curtailed more than 20 sawmills due to log shortages and the harvesting permit process, ecological restrictions and U.S. tariffs & duty costs too. We are currently into an overall supply challenge.”

“Encourage sales teams to push patience and optimism. If the frontline workers panic in front of customers, we will never come out of this. There will be hoarding, just like the toilet paper fiasco. Encourage buyers of your company to push brokers to lay off buying, which will drop demand and price, then supply will increase and drop pricing further. All retail stores would have to start doing this in order for it to work. Truck drivers did this in the ‘70s to drop fuel pricing and it did the trick. Of course, it is not possible to get all new construction to put the brakes on their jobs. If we can catch even a few, it will definitely soften this market. We have talked with homeowners, who after hearing their material has almost tripled, backed down on the immediate need and decided to wait. Pre-orders are only going to exacerbate the problem.”

“Cost is excessive. We cannot purchase needed lengths of dimensional lumber. Forget about treated purchasing needs. We will need to lose sales during our fall season this year.”

“Times are hard now for lumber, we are taking care of our loyal customers only. For the first time in my 42-year history we are having to turn away some new customers. That part is hard. I don’t like it but that is the way it is. Treated decking is the only item that we limit to customers. We also have most of the OSB on a contract with the mills. If I did not have them I would be dead with OSB. Next year I will try to contract more loads with the mill if possible.”

“Be truthful with your customers and communicate those hard to source items to everyone. Don’t over-promise inventory outages that are out of your control.”

“I agree we are seeing this with every manufacturer. Customers do understand to a certain point. We are finding that we have to keep more inventory than usual and offer our customers alternatives if we can find any. Also we are telling our customers ahead of time the lead times to expect on different products and to get their needs in as soon as they can.”

“First thing, forget the blame game. It just makes you look petty and does not solve the problem. You are not special, everyone in the industry is experiencing the same thing. Be honest with your customer. If the lead time is 6-8 weeks, or you simply don’t know what the lead time is, TELL your customer. It may not be what they want to hear, but it will let them make the decision to wait or go elsewhere. Either way your customer will appreciate that you told the truth.”

“At this point most of us are in the same boat—just in time manufacturing works when there are no extenuating circumstances, but we hit the motherlode on this one. Only advice is to sell smart, get a fair price and be picky on who you are selling to (take care of your regular customers first). Try not to get stuck with high priced inventory when it drops or you will be facing yet another problem. Seems most customers are aware of the supply issues and planning ahead. May help to educate your sales team and keep them in the loop on industry supply updates which they can then pass on to their customers on a regular basis.”

“Substitute. Keep turning what you have. Margins should be around 45-50% depending on when you bought so you have some room.”

Responses from wholesale distributors

“Those projects that are sold at acceptable levels should be supplied, once the supply is delivered. I wouldn’t buy anything that is not sold. It is better to be out than to become stuck with overpriced inventory.”

“Deal with it. Everyone is in the same boat. Oh yeah, tell your builders to deal with it also.”

“Follow the market. When you find your items at a reasonable price, book it.”

“The customers are realistic and realize what has happened. Either navigate it or you can close your doors. A lot of whining and not a lot of proactive effort.”

“Write congress and Trump and ask that they negotiate a temp. hold on the Countervailing Duty. Maybe Trump needs to apply the War Powers Act to lumber and building manufacturers to supply this housing spike! Also, dealers may be able to quote PTS (price at time of shipment) if THEIR customers can force that manner of quotation down  to the ultimate consumers…but good luck with that! But, it beats trying to glue toothpicks together!”

“Just keep communication lines open and transparent with customers. Do not overcommit on delivery times. And keep communication with manufacturers going on delays and material delivery. Just keep positive and the building and construction will happen during every season of the year.”

“You have to work with your customers closer on planning their needs.”

“Need to discuss with their customers, it is an across the board situation. It is not just unique to the ‘wood industry,’ look at vehicles, food, they are all affected. Let them know you are on their side, and you are not leaving any stone unturned.”

“Transparency—the entire supply chain is affected right now, and without transparency throughout all channels you will have some very upset people. There are some manufacturers we work with that have no good answer as to when we will be receiving our product and we pass that down to our customers. We can’t lie and guess just to get the job. We need transparency on all levels.”

“In difficult times you have to make difficult decisions, so sell what we have.”

“We too have had some delays in products arriving and are dealing with some very upset customers, the main thing is to be 100% honest or at the very least as much as you can be and do everything you can to make sure to deliver accurately and on the date you promised. That is what we strive to do. In these times every industry is dealing with the same issues on the supply chain and at every level.”

“You aren’t going to like this response but why would a manufacturer or distributor not want to reduce inventories, postpone cap-ex projects, draw down credit lines and hoard cash just like their retailer dealer counterparts? Further, what would you expect the response to be from suppliers selling commodities that are opportunistically bought and sold based on lead-time and price alone? If you want guaranteed supply, commit your business to the supplier, share your sales forecasts and monthly usage with them and let them know that you are depending on them to keep you in stock. That’s an entirely different scenario than ‘I’ll buy from you as long as you’re the cheapest or the only one who has what I need.’ It requires a commitment, advance planning, good communications and trust on both sides, buyer and seller. The advantage in doing this can be seen in times like these when demand outstrips supply. The accounts that get taken care of first are those who have committed their business to us, call them ‘dedicated or committed buyers,’ second in line are the ‘regular buyers’ and last in line are ‘opportunistic buyers’ who shop us to death and only buy from us if we are cheapest. Right now, the last category of buyer isn’t getting much if anything quoted to them for lack of supply and previous commitments to the first two groups.”

“Plenty of blame to go around, but it doesn’t solve the problem. Now it’s basic supply and demand. Everything can be procured, but it is a balance between time and money. If you simply can’t accept the extended lead times, the price will be steep. If you can adapt and look further out, material can be had, just don’t expect pre-covid prices. Eventually the escalating prices will slow demand and the cycle will start again. Yes, this cycle is extreme, but these cycles are part of the business and have been since long before our time.”

“Continue to place orders with suppliers to give them visibility and let them stay in constant communication with your customers. We can only control what we have access to.”

“You need to understand how and when this started to happen. Last fall the mills had an excess inventory of materials and started to lay off 3rd and sometimes 2nd shifts which helped alleviate some of the excess inventory. After the first of the year when COVID-19 became known the mills continued the strategy. When the states started shutting down and the Fed’s gave out stimulus checks, people decided to do home projects because  of boredom. This dried up the excess inventory at the mill level and some of the states with mills that had been shut down were still shut down causing a shortage of materials. The mills have not been able to catch up since. The most affected are the Southern yellow pine mills which not only manufacture structural wood for housing but also the majority of your treated material. This has been a simple case of supply and demand, if you learned that from your general business class in high school. As long as the demand is there for materials there will be the continued shortage.”

“You are getting our full attention to your concerns. It’s a fluid process and we will update you with the current information we have on supply timelines as we receive it. You have to remember in March and April everyone thought we all would be down 10 to 20%, so mills slowed down production and or cut back inventories. No one could have forecast demand would outpace supply.”

Responses from manufacturers/service providers

“Should have forecasted this mill shutdown / DIY project uptick. Explain to your lender the forecast: Close on the loan and take possession of 3x minimum more than usual sales.”

“If the market crashed and all the manufacturers kept producing would the dealers continue to buy even though they had no sales for the material? I understand there is stress and frustration at the dealer level but if they had any kind of stock of material they have done pretty well with price increases.”

“Not anything you can do, so just be honest and give the best information you have on availability of products. Your customers are looking to you for an honest response, pricing may stay high well into the normal fall downturn because the mills will still be behind on current demand. Unless you have a strong cash position I would not ‘load up’ on inventory, remember your competitor is in the same boat. Calm heads come out on top during these times. Good luck and never give up.”

“My advice to them would be to consider various sources of material, your primary supplier maybe short but there may be others that have either purchased heavy or have some to help you with. This year has been especially hard, just remember to communicate the best you can with suppliers and customers.”

“Sit down and email your top 10-15 customers with options. Pre-order or bid jobs with escalators.”

“You’re forced to be patient or be mad, and it doesn’t help to be mad. This is a situation that we have no control over. Bear with us and we’ll get through it BUT be prepared for extremely high pricing until we get through this and again. There’s nothing anybody can do except try to be patient.”

“I would advise builder customers to warehouse their own products. Secure what they need when they can and manage the storage themselves. While many builders have come to rely on just-in-time delivery, supply constraints will last for a while longer, perhaps up to a full year from the Covid shutdowns. In order to minimize delays and maximize job site labor, secure materials ahead of time.”

“Get off the price bandwagon; there is product out there available if you want to pay for it.”

“Hold your distributor suppliers close and rely on those that you have faithfully supported over the years to reward you with supply offerings. In these conditions, shopping around will be a waste of time.”

“Explore different manufacturer options. Look outside your comfort zone to find different manufacturers that may have products with a shorter time frame to meet your immediate needs. You may discover new product contacts along the way.”

“Our company has stopped taking on new opportunities with prospects that we have not worked with before. Those prospects are targets that we have been going after for years as they purchase from our competitor. We choose to focus on demand from our loyal customers.”

“We are facing a new reality. Tell the truth. Companies need to adjust if they want their business to continue. In the end, their customers need to understand the truth as well, so be honest with them also. Many manufacturers are flailing, but there’s lots of others that aren’t. Another option is to look at using other products that do not have extended lead times and substitute them. There are plenty of local reps in each market who can easily help fill in a house for an important closing if need be.”

“The suppliers are at a capacity level that will not allow for inventory to be built. As the season slows the inventory will become available, and lead times will reside to normal levels.”

“We are just having to saw our own 2x4s.”

“Do your best, sell only to your loyal customers and take it one day at a time.”

“Be up front with your customers. Unless they’re living in a vacuum or under a rock they know there are shortages not only in lumber and building materials but groceries and other household items. Tell them the anticipated wait time based on current information and make sure to keep them in the loop. If that doesn’t work, wish them well.”