"Where's my material?" For contractors, the answer to this common refrain is getting more complicated. Difficulty in finding goods that used to be readily available is a new normal in some cases, while the shortages and delays change from week to week. Vital products from PVC cable to switchgear and its components have been coming up short when they’re needed.
Supply chain problems may be easing in the near future, even if that doesn’t help immediate projects.
"We’re expecting to see things continue to improve—we’re seeing that ocean shipping rates are falling considerably from their highs," said Ben Johnston, chief operating officer for Kapitus, a New York-based financing company that serves local electrical contractors, plumbers, small manufacturers, general contractors, retailers and small businesses in other industries. A slight drop in shipping rates could mean there is a light at the end of this long tunnel.
"I think the pain is maybe somewhat less acute than it was, let’s say, six months ago," Johnston said.
Buying for the future
In the meantime, however, companies are coming to Kapitus seeking capital to help buy in bulk for the basics they know they’ll need in the next six to nine months, due to supply chain problems and inflation. For most contractors, Johnston said, "they feel they’re going to sleep better knowing that they have [the needed supplies] in the store room."
His first line of advice is to avoid panic buying, or even excessive preparation when it comes to purchasing.
"I think you have to look out and make sure that you have sufficient jobs lined up to be able to use the materials," he said, adding that only "if you have that confidence, then I do think that buying in bulk today is a great way to make sure that you have the product on hand."
Johnston has seen certain areas of the country—and certain types of contractors—where there is more business than contractors know what to do with. Companies working in those environments require the best strategizing possible.
"I think we [as a financing company] have to trust the business manager to understand the situation that they’re in and look out at their pipeline and say, ‘what is the level of inventory that makes me comfortable?’" Johnston said.
Business managers face a complex set of equations that factor in a very tight labor market with rising wages.
"It’s a tough situation for a business owner to be in right now, trying to balance all of those things and still make a strong return on your investment," he said.
According to Johnston, it begins before the contract is signed.
"Make sure that you’re bidding that job appropriately, that you feel confident in the bids." Once the bid is accepted, he said, "Then absolutely invest as you need to in order to make sure that those jobs are fully staffed and that you have the raw materials you need in order to fulfill those."
Other problems today
Other challenges are created by additional forces. Amazon’s expansion has meant a number of online retailers are consuming good warehouse space. That creates another headache for businesses looking to bring in inventory and in bulk.
In the long term, supply disruptions may create more demand for onshore and nearshore manufacturing and production of electrical components, which can lend itself to fewer disruptions in the supply chain and lower shipping costs. But that’s counterweighted with the a higher cost to produce and manufacture in a higher-wage location. That added cost may be worth it for some.
"I definitely think there are a number of concerns raised by small business owners who have supply chains that run through China in particular," Johnston said, related to the COVID-19 lockdowns and geopolitical angst between the United States and China. As a result, he said "I think you’re starting to see some large importers looking for other geographies either in Asia or closer to home to do manufacturing."
This creates a promising small business opportunity for U.S. manufacturers to create something that’s more dependable, even at a higher cost.
If suppliers can find a way to do more of the assembly—and even potentially the production—in the United States, they could reduce supply chain risks. That includes building those components most difficult to access during times of stress: switchgear, electric panels and other products relying on components.
In the meantime, some contractors are using creativity to fulfill their customers’ needs.
"I imagine electricians are pretty good at making do with what they have if they don’t have a certain component," Johnston said. "They know how to use a couple of other components and cobble them together to make it work."
For each contractor, though, there is a unique set of challenges.
"We’ve never faced anything like this before," said Toby Howard, director of purchasing at Cannon & Wendt Electric Co., Phoenix. But the company has taken multiple measures to manage supply chain disruptions. "We’re being very selective about the projects we’re accepting because of these supply chain issues. We’re only working on projects we know that we can successfully complete to our customer’s expectations."
The supply chain issues are affecting every aspect of business. "It’s limiting the end-users we can work with because we want to ensure we are taking care of our current customer base before we take on additional work," he said.
Planning is essential, Howard said, even where it was not needed before. Alternative solutions need to be in place in case a specific material or equipment is not available, including securing other pipelines for materials and communicating with customers about supply chain problems (and suggested alternatives) in a timely manner.
Cannon & Wendt has a team of experts working with architects and engineers to help design and choose materials and equipment that is going to be available even if one manufacturer gets busy.
"We may offer an alternate manufacturer that has a shorter lead time or better availability," Howard said.
The relationship between contractors and vendors has changed in the past two years. Not long ago, if a contractor wanted to expedite a product delivery, they could pay for that with an expediting fee.
"We have seen in the last year that sometimes, there’s just no option. It doesn’t matter what you’re willing to pay, their hands are tied, they simply do not have the components, he said."
For Cannon & Wendt, that’s where they benefit from strong supplier relationships. "Because we have a long proven history with them, there is a level of trust already in place, and we are able to have these discussions in an open and transparent manner," Howard said.
The best outcome of any project, he added, "is that we delivered the product to their expectations and we’ve maintained our relationships through it." These customer relationships are top priority for the firm.
"I’ve been touring our vendor partners’ facilities" in recent months, he said, to help understand their inventory situation. "Some have been very successful at forecasting that this was coming, and early on they were able to gain a substantial inventory," while others have specific shortages.
"Due to our strong customer and vendor relations, this is a storm we will get through together," he said. Communication has increased with vendors to ensure it.
Growth in Phoenix
Switchgear alone is being quoted with lead times of 52—56 weeks. That kind of delay impacts a project regardless of preplanning. Spectra works to overcome the volatility in supply chain and cost by holding its bids for five days instead of the normal 30, so they can be assured the products already been quoted don’t rise in price and will be available when needed.
Everyone in the industry is looking into a cracked crystal ball, Brunia said. Open dialogue, and early long-lead procurement, alternate materials and methodologies—presented to and approved by owners—can benefit a project’s schedule and budget.
Before a contract is signed, however, Spectra’s project management team is planning. Within 24 hours, purchasing is locked down. The company’s preproject plan is in place, and daily communication is underway with their vendors for any changes in lead times and costs. If contract award is delayed for any reason and either the lead time or costs change, it is communicated immediately to the client.
"Vendors are doing their best," Brunia said, but problems arise if people postpone sharing bad news, whether that is the suppliers telling a contractor that equipment won’t be in on time (or costs have increased), or the contractor sharing that same bad news with their customer.
Nobody likes hearing that there is a problem, but, as Brunia said, "bad news does not get better with time either. We tell our people not to sit on bad information—gather all the facts and get it to the client as quickly as possible, along with any proposed alternative solutions. Then make some mutually acceptable decisions."
In the long run, the state of the supply chain will improve, contractors agreed. Until it does, Brunia said, "transparency, communication, constant vigilance on the tracking updates—that’s what keeps us going."
The future looks fairly bright, Johnston agreed. As construction growth slows, "I expect the remaining portions of the supply chain to largely unclog and capacity will start to open up."