Taking stock: Supply chain issues in plumbing and heating
Increasingly long lead times, price hikes and uncertainty as demand outstrips supply have left heating and plumbing engineers in limbo over the last year and a half, leading them to question what can be done to ease the pressure.
The COVID-19 pandemic, and the subsequent lockdowns, has resulted in more people working from home, which meant some consumers have had more disposable income. Unable to venture far, many people have chosen to spend their money on improving their homes, which has caused a spike in demand for all kinds of materials.
“There is a great deal of frustration amongst installers and engineers about the increasing cost of materials,” says Mick Walsh, CIPHE member and owner of Walsh and Son. “There is a general concern that some merchants are using the current situation as an excuse to charge more when they already had items in stock. We appreciate that there is a worldwide shortage of materials, but how does increasing the cost help with supply problems?”
Supply chains have been under pressure since last summer and struggling to keep up with demand. The problem was exacerbated when the COVID-19 restrictions began to lift as there was an issue caused by the speed of recovery versus the anticipated recovery.
“The market demand since last summer has caused availability strain across most sectors, reducing buffer stocks throughout the supply chain, which has meant commodity costs have risen rapidly,” explains Richard Harvey, commercial director, plumbing and heating, at CIPHE Industrial Associate, Wolseley UK. “Price increases could not be absorbed by manufacturers, leaving them no choice but to increase prices, often with very short notice. Similarly, merchants have struggled to maintain availability on many of the products experiencing high inflation levels and, like manufacturers, have had to react accordingly.
“We continue to invest in inventory to maintain at least 98% availability which has not been easy given recent market conditions. Where suppliers do give us advance notification of future issues, we endeavour to increase our order coverage to protect future availability, but physically there is only a finite amount of warehousing space we can utilise.
“We aren’t holding any more stock. Suppliers can see problems three or four months in advance and we can adjust accordingly. However, there is only so much you can do to protect your customer base.”
The trade and construction boom, mixed with logistic issues caused by Brexit and the pandemic, has created the perfect storm. Delays in raw materials to manufacturers has had a knock-on effect, pushing delays right down the line to the trade counters.
“In many cases it’s causing panic buying from the larger firms that is driving costs up, while making materials scarce,” says Ben Dyer, chief executive officer of Powered Now. “With shop closures and production lines halted by the so-called ‘pingdemic’, a bout of wide-scale isolations is pushing waiting times for labour and materials to new record lengths. With the average wait time for private jobs in the trades now exceeding three months, there is genuine concern that the industry cannot keep up with demand.”
There is also a serious lack of hauliers as the UK lost 15,000 European drivers this year due to Brexit and 30,000 UK driving tests were cancelled due to COVID-19. This issue is causing nationwide problems.
The Construction Leadership Council’s (CLC) Product Availability Group is supporting the Road Haulage Association in its discussions with the Department for Transport to address the shortage.
John Newcomb, chief executive officer of the Builders Merchants Federation, and Peter Caplehorn, chief executive officer of the Construction Products Association (CPA), co-chairs of the CLC’s Product Availability working group, said: “Inevitably, all of this is feeding into price inflation and the expectation is that high demand coupled with tight supply will sustain elevated prices throughout the year. New rules on hauliers have exacerbated the shortage of drivers in the UK, which is another contributing factor adding to delays and lead times not only in the construction industry, but many other sectors as well.”
Fear of the unknown plays a major part in feelings of frustration felt by installers and merchants, so it’s important that there is clear communication and forward planning.
According to the CPA, “Communication throughout the supply chain is essential to assist with reliable delivery dates and to manage expectations about any shortages.
“Allocation systems should be as transparent as possible, so all customers can be seen to be treated fairly and provided with both the information and the products they require to plan and complete projects in a timely manner.
“Builders and contractors should also maintain open communications with their customers regarding lead times, possible product substitutions and early notice of potential price increases.”
The fact that the majority of materials required by UK trade and construction sectors are manufactured or processed in mainland Europe has lengthened supply lines. European manufacturers are addressing supply chains, prioritising those closest to them, which has left the UK at the back of the queue.
The reliance on European manufacturers has proved problematic following Brexit and the current pandemic, which has seen a drive towards moving material production to the UK.
Business Minister Ivan McKee is championing the ramping up of manufacturing of construction materials in Scotland following the UK’s exit from the EU. Speaking at meeting of the Construction Leadership Forum (CLF) he said: “Materials from plasterboard and timber to steel and insulation are in short supply because of a combination of global factors in addition to EU Exit and COVID-19. This is having a significant impact as some businesses are unable to source the construction materials they need at a stable price.
“I want us to consider every opportunity for Scotland to manufacture as many of the construction materials we require as possible and I would encourage businesses to work with us to ramp up our own manufacturing supply chains. The CLF is urgently exploring how we can grow home supply chains which can improve resilience, support net zero ambitions and help grow the Scottish economy.
“We know that spending on construction has multiplier effects and creates additional value elsewhere in the economy. I want to see every penny of that outlay go back into the pockets of Scottish businesses as we rebuild a sustainable economic recovery from the pandemic.”
The biggest impact has been on small and medium-sized enterprises (SMEs) that are having to buy from their local merchants, an issue with a particularly high impact on the plumbing and heating industry. The surge in demand has left SMEs struggling to purchase essential materials, which not only prevents them from completing projects, but affects their business’ cash flow too. As a result some are looking for alternative options, which isn’t ideal. Tradespeople must remain aware of their responsibilities when it comes to the supply and installation of non-compliant products and parts.
“The cost hikes have put installers on the ground in a really difficult position because we are forced to either pass on the costs to our customers or take a cut in our profits,” explains Walsh. “I really care about my customers and don’t want to have to do that.
“Materials shortages and subsequent price increases haven’t been publicised on the news, so customers aren’t aware. Some customers may think installers are trying to take advantage of the COVID-19 situation, which reinforces a negative perception of tradespeople, but we are the victims here. We work so hard to protect our standards and the quality of our work and these price rises create a real problem.”
The unprecedented demand nationally and globally is predicted to continue into next year, so it’s vital that the manufacturers and suppliers clearly communicate with the industry to allow them to plan ahead.
“I think we are reaching the peak of inflation in the market,” asserts Harvey. “There is a consensus that commodity markets are beginning to flatten out. The only unknown is whether they will stay at the currently inflated prices or come back down.”
It’s vital that installers communicate with their customers and encourage them to think about servicing their boilers, explaining the issues that may arise due to materials shortages, before the weather turns. However, the fact remains that vulnerable people will be left with no heating and hot water this winter as a result of breakdowns and no amount of communication with suppliers is going to resolve this problem.
“Despite valiant efforts by manufacturers and merchants to service and support the industry, emergency situations are going to be increasingly hard for installers to deal with without a stable supply chain,” says Kevin Wellman, chief executive officer of the CIPHE. “With the current lack of stock reliability, the reality is that consumers and installers may be caught short this winter.”
The CLC: working together to create benefits
The Construction Leadership Council (CLC) stresses that wherever possible the industry must work collaboratively to manage this unprecedented situation to everyone’s benefit. This could include:
Where products are in short supply, any allocation systems should be as transparent as possible so all customers can be seen to be treated fairly.
Good communications will reduce frustrations. For example, customers should not over-order and manufacturers should not promise delivery dates that cannot be achieved.
Where relevant, the production for major projects – which is typically scheduled well in advance – should not be seen to adversely affect volumes available for smaller regular customers.