Some guy named Walter Cannon first talked about the idea that in the face of a harmful event or attack, there is a tendency to run or stand your ground and fight back. This is “fight or flight” and is also known as “hyperarousal” or the “acute stress response.” See Wikipedia. In effect, there is a hormonal bomb that goes off that affects how we react to extreme stress.
Today, many businesses in the wood and related industries are facing existential threats that could easily cause that hormonal bomb to go off for those in leadership roles. For Paragon Concepts, we have seen this trickle to lead times that are longer than we want, frustration with our own production staff not being able to do produce like they are used to and sales that could be higher if we could only ship our products.
What do we do?
We decided to focus on those things we can control. And, before we go into those keys, I wanted to share some conversations, observations, and hard facts about the times we are in right now.
There is a perfect storm brewing. Supply is PAINFUL.
Did you know that there are ships at sea that have no ports to come into? Did you know that there are about zero containers to ship stuff to us? Did you know that there are ships in port abroad that cannot even leave to come here because they have no place to dock?
At home, there are more shipments than carriers. We have seen our own, standard Fed Ex three-day shipments disappear completely on more than one occasion. Sometimes, they reappear. Sometimes, we have to reship.
One vendor shared how the lead time just from North Carolina to Colorado used to be one week but now takes two weeks. 100 percent increase.
For those shipments that get released, the container rate has doubled for many. Truck rates at home are up 100 percent. Rail rates are up 50 percent. Whoa!
In fact, freight for melamine-related products is the main issue in that arena. And costs have almost doubled across the board. A truckload of sheets with 420 sheets on it has seen an increase of $4/sheet just to ship. Try LTL’ing a couple sheets. Comical.
Ok, let’s face it. Many mills’ prognosticators flat got it wrong. They thought COVID would kill their business, so they cut production. Those second and third shifts were eliminated. Expansion plans were put off. New equipment purchases were put on hold. Production fell, and there is no such thing as catching up. In fact, just trying to rehire and ramp up the new folks is a challenge. The impact is that plywood-related materials have seen an exponential increase in costs and delays.
Domestic mills do NOT need more business. In fact, it sounds to us like domestic mills are simply raising their prices to keep the gap between them and the imported alternatives wide. They are printing money, in our opinion. The trickle-down effect is evident. We believe this is significantly short-sighted. People remember. As long as the supply chain doesn’t say “uncle”, we expect costs to continue to skyrocket (unless the government gets involved).
Many distributors of materials are on allocation based upon prior sales volume. This is good and bad. The good is that it keeps a level of materials in the supply chain and any one group with deep pockets from hoarding. The bad is that demand is going through the roof because folks stay at home, work at home, school at home, etc., and are deep into pushing demand up.
Price-time shipping. Have you ever heard of this? One party we interviewed shared how they don’t even know what they are paying for the materials until AFTER it ships. If they don’t like the price, they can cancel the shipment, which puts them at the back of the line. Smells like extortion to us. People remember. Demand for materials allows for these types of practices.
Lead times are kaput. One distributor shared how it used to take two weeks to get MDF. Now it is eight to 10 weeks. One of our more formidable door competitors just moved its lead times from five business days to 20.
For businesses with historically short lead times (e.g. closet shops), this poses a problem with the consumer if not managed correctly. In our own observation, we have seen that shops across the country haven’t completely gotten on board with the reality of the modern supply chain. Many still believe that a closet system can be delivered in two weeks. We think that it is wisdom to interview your suppliers to see what kind of issues they are dealing with that may negatively impact their own ability to deliver on time. Adjust.
NO NEW CUSTOMERS. For those who do not enjoy healthy relationships with their suppliers, there might be quite a problem brewing. Many distributors, for example, are not taking on new customers. The industry is thriving. Existing housing inventory is low in many areas. That creates new construction and remodeling demand increases.
Did we mention the perfect storm that is brewing?
So, that’s the "bad" news. But there is good news – LOTS of it.
Here’s what we see:
For those in the wood industry, NOW is the time to get into man-made products such as TFL, Supermatte, high-gloss and acrylic. Melamine actually hasn’t increased in price a whole lot. Freight has, but the man-made side of the equation hasn’t seen the painful increases that wood has.
Cull out the bad customers. This is true across the board. We all have customers who pay slowly, are expensive to work with, we simply don’t like or whatever. I am sure the 80/20 rule applies here, but the point is that now is the ideal time to remove the less-profitable base.
Learn to present alternatives. If your sales staff isn’t current on the alternative options, invest immediately in educating them. Prices are in a flux. Now is a great time to take advantage of the fact that old habits are breaking. Fresh new beginnings are at hand.
Proactive communications pays dividends. The market isn’t quite educated yet on all of the supply issues. They just know that their projects are delayed, on hold, etc. Learning to properly set correct expectations and communicate well with your base will give you long-lasting returns. It will also positively build your brand and referral base.
Raise your prices. Part of this is innate. The other part is that many folks have held their prices steady for fear of losing business. Well, now you have opportunity to right the ship. Not only can you focus on the profitable customer base, but you can also focus on profitable product lines. The good is that everyone is going to adjust. They have to.
We should all pray that this summer produces an amazing logging harvest.
There is a reason that companies reinvent themselves over their lifetimes. New packaging. New pricing. New promotions. New. New. New. Every now and then we are thrusted into the need to do just that. The ones that stay stuck in the old will disappear. But the ones that quickly adjust and take advantage of the opportunity before them will definitely flourish.
As for our own companies, we have been investing heavily into new equipment over the last couple of months. We have also upgraded our technology across the board and are investing heavily into staff training. And, we are looking for new alternatives as options to some of our established solutions.
Our own demand is through the roof, and we are doing all that we can to right the things that we can control while building a culture that openly communicates with its customer base on the things we cannot.
In the end, we plan on coming out on top. There is no flight in the amazing group of folks we have working with us. We will fight to the victory.
We hope to see you right there with us.
Have something to say? Share your thoughts with us in the comments below.