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Supply chain snarls result in innovative strategies from Sarasota construction firms

29 Mar 2022 11:06 AM | Deleted user

Sarasota Herald-Tribune

March 28, 2022

Supply chain issues resulting from pandemic related snarls have plagued the U.S. construction industry for roughly two years now.

The first widespread public notice of the supply chain issues came when the price of lumber skyrocketed to all time highs last spring, but industry experts said the difficulties sourcing some construction materials had been ongoing for months before that.

That increase in the price of lumber to a record $1,500 per 1,000 board feet in May 2021 caused the cost for home builders to increase by tens of thousands of dollars, homebuilders told the Herald-Tribune last summer.

While prices dropped to below $500 per 1,000 board feet by August, it has steadily been on the rise and above $1,000 per 1,000 board feet most of February and March.

Sarasota homebuilders told the Herald-Tribune last summer besides the drastic increase in lumber prices, a lack of garage door springs as well as long lead times for windows delayed some projects.

Delays can also be costly to companies as many contracts have dates built in when a project must be completed or the builder gets assessed penalties, leading to builders paying higher prices to ensure projects finish on time.

The increase in price of construction material combined with a difficult labor market and the intense increase in demand for general contractors seen along the entire southwest coast of Florida has prompted local companies undertake innovative strategies in an attempt to solve their supply chain problems.

Neal Communities, the largest locally owned home builder, purchased a Brooksville company that manufactures roofing trusses in February, part of the company's strategy for vertical integration.

“Given the current supply constraints in the building industry, this acquisition is a step toward alleviating the difficulties in the supply chain that we are experiencing,” said Pat Neal, founder and chairman of Neal Communities.

Vertical integration

Chris Jones, a faculty member at the University of South Florida who holds a doctorate in economics, said as the supply chain issues continue more companies have looked into vertical integration as a potential solution.

Vertical integration happens when a company acquires two or more stages of production typically undertaken by different firms into one company.

"Basically, companies are looking to take a couple links out of the supply chain," he said.

Jim Sullivan, director of undergraduate programs at the M.E. Rinker Sr. School of Construction Management at the University of Florida, said while he hasn't personally heard of many companies buying up suppliers to solve their supply chain needs, construction companies are attempting to address the problems in other ways.

"What companies are doing is ordering early and storing more and more materials on site," he said in an email. "This does two things – guarantees the material is actually on the job and locks in the price. Currently those are the two big issues in construction – supply chain management and cost increases."

Some of the supply chain issues

Doug Sutter, president of the commercial roofing company Sutter Roofing, said while his company is busier than ever, the supply chain issues are a problem.

He noted the company recently purchased equipment to open a light concrete division as a direct response to some supply-chain issues unique to the roofing industry.

Both Sullivan and Sutter said insulation used in roofing has become difficult to find with some orders taking about a year to fulfill.

Sutter said insulation orders before the pandemic took just three to six weeks.

That's where the light concrete division, which can be used for insulation in roofing, comes in. It fills a duel purpose as Sutter is also worried about a shortage of roofing fasteners in the near future.

"We feel this (opening a light-concrete division) gives us the flexibility to meet our customers schedules and needs than solely relying on POLYISO roof insulation," he said.

Nate Yoder, marketing director for Mullet's Aluminum, said the current supply constraints reinforces something the company has believed for a long time — maintain great relationships with trade partners.

He said because of the companies longtime relationship that stretches back to the 1970s suppliers have worked with the company to overcome problems as they became known.

He said the company has worked with suppliers by showing them their anticipated project pipeline and purchased materials for the entire year.

"I can't stress how important those relationships are," he said.

Demand for commercial builders, labor shortages

Mary Dougherty, executive director at the Gulf Coast Builders Xchange, said it feels like every time a snarl in the supply chain is ironed out, something else pops up.

She said not all of the issues are pandemic related, pointing to the a hard freeze in Texas that knocked two of the three largest suppliers of PVC pipe offline.

Still, she said her members tell her that demand for the for commercial builders is high throughout southwest Florida.

"For Florida, it looks very good despite the supply chain issues," she said.

She noted that while supply chain issues do seem to be a topic of conversation, possibly just as big of a problem is the labor shortages.

She noted that this August Riverview High School will start a program focused on the construction industry for 60 students. She said a Riverview official told her there's a waitlist already and talks about expanding the program to North Port High School.

While companies purchasing other companies to meet their individual challenges may solve the purchasers supply chain issue, it doesn't in it's own right fix the issue for smaller companies unable to afford vertical integration.

Jones, the USF economics professor, said the purchase of a supplier can create challenges for smaller businesses who may no longer have access to the materials now directed toward the purchaser.

Neal Communities noted in its news release the Brooksville truss company would "retain most of its current customer base and is adept in building a wide range of trusses."

However, if the practice becomes more common, smaller companies could find it even more difficult to source construction materials, which would lead to a less competitive marketplace, Jones said.

"It absolutely does have a impact in the short run," Jones said. " and an obvious impact to pricing and supply in the market."

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