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Distribution Challenges in Construction

In episode 6 of our In Practice series, Bob breaks down how planning ahead while using technology to closely track and manage larger inventory is essential to mitigating distribution challenges.
Written by Kate Carlson
Greiner Construction
Distribution Challenges in Construction

Construction Distribution Challenges

Spencer Finseth, Principal at Greiner, sits down with Bob Katter, executive VP at Kendell Doors and Hardware, Inc. and longtime industry partner, to discuss distribution challenges and the impact of supply chain delays in the construction industry. 

The pandemic has shed light on areas in this industry that are in need of improvement. As the pandemic continues to affect most (if not all) industries across the globe, it is essential to learn how to work under these new conditions in order to thrive.

In episode 6 of our In Practice series, Bob breaks down how planning ahead while using technology to closely track and manage larger inventory is essential to mitigating distribution challenges.

Lead Times and Pricing Increases

Managing pricing increases with longer production lead times is one of the biggest challenges facing distributors right now. Because of supply chain delays and slower shipping times it can be difficult for distributors to provide accurate timelines for projects. On top of that, some materials are more expensive due to increasing surcharges. This means customers are potentially in the dark regarding when their projects will be completed and their price points may have to increase to keep up with changing demands. 

Bob’s approach in mitigating pricing increases and delays has been to understand construction schedules in order to provide customers with an accurate timeline. This means keeping communication channels open across the board from distributors and manufacturers to designers and customers. 

There are a lot of moving parts in distribution that contribute to delays including managing and tracking where different materials are coming from — materials could be coming from overseas, across the country, or right down the road. There needs to be a level of protection for distributors when ordering parts and developing a project timeline. Scheduling is not an exact science given that no one knows what the situation will be a year from now, which is why transparency and regular communication is key.

Change in Mentality

The main problem in distribution is supply chain delays and not knowing where materials are on the transportation route. When it comes down to it, distributors just can’t give their customers an accurate time frame like they used to. To combat this issue, distributors need to approach their customers and industry partners differently:

  • Push design teams to make decisions sooner 
  • Order supplies 6-9 months in advance instead of 3 months out
  • Increase warehouse capabilities to store additional inventory

Right now manufacturers are getting their supplies on a first-come-first-serve basis. Because of this push to order faster, distributors have had to increase their inventory and manage their warehouses and off-site storage facilities more rigorously. This has led to more advancements in technology, specifically in barcoding for inventory management. There is less room for error right now which has forced distributors, manufacturers, and others in the industry to adapt in order to thrive.

Getting Ahead of the Problem

At this point, we know that the pandemic is the cause of many of these delays and shortages. We also know that COVID is not going away overnight. Instead of blaming the pandemic for delays and sitting around waiting for products to ship or prices to lower, there needs to be a shift in perspective. 

The pandemic has exposed a few cracks in the system and is proving to be a great opportunity to increase efficiency and improve best practices to get ahead of the problem. 

  • Be proactive
  • Build and nurture strong partnerships
  • Hold yourself and your team accountable

By staying one (or more) steps ahead of the problem, distributors don’t have to sit around and wait for materials to ship or for the pandemic to be over. They can still continue to provide customers with high quality work done in an efficient manner with the support of a great team and industry partners to back them up.

Summary

While shipping delays certainly make it difficult to provide an accurate timeline for customers, being proactive, ordering supplies earlier, and communicating closely with customers, manufacturers, and contractors makes for a more efficient process. As the pandemic continues to cause shortages and delays it is essential to keep an open mind and take on an opportunity mindset to provide customers with quality products in a timely manner. 

Follow along with Greiner’s In Practice series as we continue to explore construction topics with industry experts.

Transcript

​​Spencer Finseth (00:00):

Thank you Bob for coming over here today means a lot to us. We’ve had a long working relationship for what over 20 years. Yep. So appreciate it. And there’s probably nothing more on people’s mind right now than commodity and pricing. And matter of fact, I was reading a little article this morning. It was just echoing everything I hear and supply chain, shortages, price increases, ongoing labor shortages, the labor war, healthcare costs, COVID protocols, and it was just nonstop echoing it and really made me think of you folks – how are we dealing with it and how are we dealing with it well? And it made me think, you know, we should share this information with the folks and, so I thought we should probably sit down and have a conversation with you.

 

Bob Katter (00:45):

Yeah, this is great. Thank you for having me today. Glad to jump in here and I’m gonna fill you in a little bit on the distribution side of the business. And some of the challenges are all very relevant to our world right now, so cool. Let’s jump right in. Okay. Well,

 

Spencer Finseth (01:00):

Why don’t we, why don’t you give us a little bit of info on kind of who you guys are and what you do and your role there?

 

Bob Katter (01:07):

So, company, Kendell Door and Hardware company’s been around since the 1970s expanded in the twin cities Metro area right around 2001 – 2002. And at this point we are expanding nationally. So about three years ago acquired a firm out on the west coast, Washington architectural hardware followed that up with Watson security, a security business out on the west coast. Newport distribution which is a firm we acquired about a year and a half ago in Chicago. And recently just closed on an acquisition in North Carolina, Greensboro, North Carolina, so coast to coast distribution model for the doorframe and hardware business on the commercial side. So I myself have been with the firm, well, two stints, but most recently, about 20 years going back to 2002 executive vice president but have had a heavy focus in the last 18 months in supply chain directly involved with our vendors as a distributor not, you know, solely manufacturing the product ourselves. A lot of the key relationships are with our manufacturing partners, where the products are being made. And then of course we’re taking those out to the market. So that’s where I’ve spent a lot of my time in procurement in managing our supply chain the last 18 months. So this is very relevant.

Extend Full Transcript

​​Spencer Finseth (00:00):

Thank you Bob for coming over here today means a lot to us. We’ve had a long working relationship for what over 20 years. Yep. So appreciate it. And there’s probably nothing more on people’s mind right now than commodity and pricing. And matter of fact, I was reading a little article this morning. It was just echoing everything I hear and supply chain, shortages, price increases, ongoing labor shortages, the labor war, healthcare costs, COVID protocols, and it was just nonstop echoing it and really made me think of you folks – how are we dealing with it and how are we dealing with it well? And it made me think, you know, we should share this information with the folks and, so I thought we should probably sit down and have a conversation with you.

 

Bob Katter (00:45):

Yeah, this is great. Thank you for having me today. Glad to jump in here and I’m gonna fill you in a little bit on the distribution side of the business. And some of the challenges are all very relevant to our world right now, so cool. Let’s jump right in. Okay. Well,

 

Spencer Finseth (01:00):

Why don’t we, why don’t you give us a little bit of info on kind of who you guys are and what you do and your role there?

 

Bob Katter (01:07):

So, company, Kendell Door and Hardware company’s been around since the 1970s expanded in the twin cities Metro area right around 2001 – 2002. And at this point we are expanding nationally. So about three years ago acquired a firm out on the west coast, Washington architectural hardware followed that up with Watson security, a security business out on the west coast. Newport distribution which is a firm we acquired about a year and a half ago in Chicago. And recently just closed on an acquisition in North Carolina, Greensboro, North Carolina, so coast to coast distribution model for the doorframe and hardware business on the commercial side. So I myself have been with the firm, well, two stints, but most recently, about 20 years going back to 2002 executive vice president but have had a heavy focus in the last 18 months in supply chain directly involved with our vendors as a distributor not, you know, solely manufacturing the product ourselves. A lot of the key relationships are with our manufacturing partners, where the products are being made. And then of course we’re taking those out to the market. So that’s where I’ve spent a lot of my time in procurement in managing our supply chain the last 18 months. So this is very relevant.

 

Spencer Finseth (02:31):

You’ve got an interesting product cuz you have product, you buy both locally, nationally and internationally, right? Correct. So I’m assuming your supply chain issues are different depending on if it was hardware, if it’s door or metals. I mean you you’ve got a lot of different supply chain issues.

 

Bob Katter (02:49):

You’re exactly right. I mean, in the doorframe hardware world, right, we’re probably at any time managing 40-50 different product lines. Some, are made as close as Iowa and Wisconsin, some are made out on the coasts and then you have the bits and pieces, bits and components. I should say the chips and such that are manufactured overseas that are brought in to put the final products together. That’s really the challenge for us is in some respects, you don’t always know where all the components are coming from to make the final product. A lot of times the final product is manufactured in the United States. But for instance, right now I have veneer on boats coming from overseas that I’m trying to get my arms around to find out when I’m gonna have that veneer so we can build the doors and such. So yes, to answer your question, I’ve got stuff coming from all over the world.

 

Spencer Finseth (03:43):

So, of all of that, managing all of those issues what do you think, you know, if you highlight some of the major problems you guys are seeing right now that are kind of impacting your business the most,

 

Bob Katter (03:57):

The two biggest issues are pricing. We have a very active dynamic pricing environment and then lead time production lead times. So managing those two together is currently our biggest challenge and probably will be for some time. On the pricing side items such as steel we’ve incurred 55% surcharges since the beginning of April. So that price has adjusted, you know, 55% our cost basis. At the same time we’re bidding out to general contractors, our customer base and in performing or bidding to schedules. So you have to project, you know, again, knowing in 6-7 months we moved 55%. If I’m bidding a job in 2022, how do I protect myself? How do I cover myself?

 

Spencer Finseth (04:47):

Well, we talked about that, right? So we have quick, fast tenant improvement projects, right? That we need the product. It’s an eight week job and we need the product even faster. Or we have larger projects that might, I might not need doors until next fall. So how do you approach those two projects? Let’s say a fall like a large hotel project that I don’t need the doors until September of next year. So how can you guarantee, and we talked about this little earlier off camera. Yep. And maybe that also kind of ties into the next question that I’m gonna ask, even before you answer this one is, you know, some of the things that we’re having to do to make sure your pricing’s good. So maybe if you could explain your approach on pricing first, and then we could talk about maybe how are we together handling trying to solve some of these issues?

 

Bob Katter (05:41):

Well, on the pricing side we’re gonna understand or try to understand the construction schedules and again, schedules change, right? But, as we know today, we’re gonna look at the construction schedule and we’re going to you know consult with our manufacturers. This is the schedule for the project we expected to, you know, the duration is through mid 2023. Here’s the level of protection I need on this project to cover myself, cuz again, schedules will change, but I need some level on something that’s that far out. You know, you’re probably hedging to some extent cuz items such a steel 55% surcharge that may come down next year. We don’t know, but it also may go up and with our customers though, we need to be, as you are locked in with your end users, we’re locking in with you to the schedule.

 

Bob Katter (06:35):

So, we’re having those conversations on the manufacturing side and say, Hey, listen, this is the duration of the project. Here’s what I need now. For instance, steel, right now, they’re generally quoting out about six months and then they’re stopping after a six month. They give you no protection beyond six months. So that’s a conversation we’re having to have and say, no, I need protection beyond, you know, what is my hedge? What do I need to do to protect myself? And it’s a little bit of a little bit of a projection right now. There’s, it’s not a, I wouldn’t say it’s an exact science,

 

Spencer Finseth (07:04):

It is an art though. I know when we receive quotes from folks to understand that our, what are we getting from you? Are we getting today’s price? Yes. Tomorrow’s price. Yes. Or what is that hedge? Right. Is that hedge so crazy that it just doesn’t make sense. Yep. And then as the owner involved in some of these conversations or not right. And so that’s kind of a conversation we have with our ownership group, right. Is what are we doing? And to make sure that they understand that we have it both either covered or that we know what the risks are

 

Bob Katter (07:35):

Correct. And one of our, you know, one of the challenge is on our side is you’re exactly right. Today’s price versus a price from a year from now. How is our competition looking at the projects? Are they looking at ’em in the same light? Cuz quite honestly, I might not be a low number if I’m having to protect myself or protect my customer out 18 months versus if I can buy it all today and ship it. Right. Sure. That’s a different conversation in this market right now. Yep.

 

Spencer Finseth (08:01):

Which is gonna be my next question in a second. So okay. On the TI’s on the quick, fast TI’s, how are you handling that?

 

Bob Katter (08:08):

Well, it’s speed to market. It’s utilizing expedited programs. That’s where the relationship piece comes into play. And that’s, you know, us as a larger distributor with a nationwide footprint or we’re, you know, we’re in a better spot than some with some of those relationships with key vendors. I still need to be able to get, you know, product to market in the TI business relatively fast. I can’t come back to my clients and say, well, it’s 15 weeks now and you’re just gonna have to wait. So it’s expedited programs. It’s working those relationships. It’s also inventory. We have probably more inventory on our shelves than we’ve ever had as an organization. So it’s having products readily available. You can’t have everything. But having those, those bread and butter items that you’re turning quite a bit at stocking levels that you normally would not have. Yeah.

 

Spencer Finseth (09:04):

How are you dealing with foreign hardware, things like that? How, what biggest issues are you having with that product?

 

Bob Katter (09:12):

Well, it’s either – it’s tracking where it is in transport. Right. Talking to a vendor, you know, a few weeks ago they were bringing hardware, it was an import product was gonna get caught up in the bottleneck off, you know, outside of LA, they actually made accommodations to get it shipped up and moved through Seattle and rail back down to Alabama where ultimately the warehouse is. So it’s the transport piece again, it’s this veneer that I’m talking about, that’s on a boat, but I can’t quite tell where it is on a boat, but I’ve got an anxious customer on the other side saying, when am I gonna see my finished good? And I can’t answer that question right now until I, you know, lock in and understand where it is, what boat it’s on, what crate it’s in and when that’s gonna be docking.

 

Spencer Finseth (10:01):

And I know that can be a problem. I’ve talked to other folks with some similar issues that you might not know who the manufacturer is sometimes either, right. Until it gets here or things like that. And yeah. Or you might be hearing a different conversation of what you think it is. And then by the time it gets here, the actual product may have changed or that supplier may have changed.

 

Bob Katter (10:22):

I would say it’s very dynamic right now to your point. We don’t always know. We, we know where the finished good is being manufactured, but we don’t know all the parts and components and pieces that go into making that finished good. I would say 2 things: size definitely matters right now. So what we’re finding is, although one of our manufactures, some of our manufacturers have been able to source from a particular part supplier for years, that part supplier has pivoted their business to go elsewhere right now, most likely because they’re getting paid more to make that part. So there’s some interesting pieces happening on that side of the business. And then we have those that, so as they look for additional sourcing, dual sources, more repetition on that side of the business, they’re having problems replicating the specifications. So that’s causing some challenges in our business right now in terms of finished goods, finished hardware.

 

Spencer Finseth (11:16):

Sure. So the other thing we talked about maybe is like some of the solutions that we’re both trying to figure out how to deal with this. And you know, we, in the past a lot of times clients would say not to order things too early, they don’t wanna pay for ’em that early start collecting, you know, start paying interest having ’em damaged or whatever. And then of course on the vendor side, you guys would come back and say, we don’t wanna warehouse this. And that costs money, things like that. And that definitely has switched kind of conversations. So one of the things I know we’re trying to do is push our upstream. So the design team, the owners to make decisions earlier, right. Which is tough because they, a lot of times they like to push these off a little bit, to find out what competition’s doing, what’s happening in the market. We don’t have that anymore. Right. So if we’re trying to do that what pressures is that putting on you buying these products early and forcing to have to warehouse and things like that? What other,

 

Bob Katter (12:15):

No, it’s warehousing space. So I think I mentioned off camera our warehouse is as full as it’s ever been. We also have offsite storage space. We’ve secured some offsite storage space and we’re warehousing, even product offsite. I would say first come first serve in this market right now and when it comes to manufacturing. So we’re pushing purchase orders in much faster than we ever would’ve. Normally if I was buying out, you know, three months, a three month window, I probably extended that to six to nine months. So I’m buying product right now that really isn’t needed on site until next spring. But I’m gonna have a very difficult time explaining to a customer that I didn’t get their product on time. If I knew that if I was approved, they knew what they need and they didn’t need those spring. I gotta go get it now because I don’t trust where it’s gonna be in January or February. They’re substantial concerns with, as we continue to see this demand you know, how manufacturing is gonna perform, if we’re gonna continue to see stuff, push out, I’ve gotta take it to purchase order now.

 

Spencer Finseth (13:23):

So yeah, well, that’s tough even on our teams, right? We’re not used to you know, we try to have everything bought out in 30, again, if it’s a longer, bigger project, maybe 30 day buyout, but sometimes, you know, what slips are the doors, the frames, things like that. Yep. So we’re having to make sure that we are considered, you know, always talking to our teams are, have you, is the stuff being bought out? Are the purchase orders being sent to you because we’re now locked in at a price yep. Right. With our folks and how do we lock in that? Right. We have to do it quick. So shop drawings, right? Yep. You know, they could sit on someone’s desk for a while, whether it’s sitting at architects, our place, your place. So again, kind of that constant, and it’s not just you, right.

 

Spencer Finseth (14:03):

It’s, the whole gamut, it’s carpet, it’s light fixtures, it’s everything. And we kind of would take it piece by piece as the job would go, and we’re not able to do that. So it’s that upfront piece is just, it’s more work, which is our other issue. Right. Just workers. Right. We’re all I saw that report that I was talking about earlier was it said 89% of business owners are having difficult hiring employees. 89%. It’s crazy. Yep. Right. 63%, it said we’re having trouble with retention and I’m assuming all of us, right. It’s all smaller firms and medium size firms. And so we’ve got the pressure of growth. We have the pressure of more upfront. Right. We have all of those pressures and, just the change we’ve been doing it the same way for decades. Right. And to have that change, and I know that’s been difficult. Continue to have partners like you folks again, making sure it’s a two way street that you’re pressuring us. We’re pressuring – pressure might not be the right word, but making sure that these things are getting done quicker than maybe what we’re used to.

 

Bob Katter (15:10):

I do think there’s been some level of complacency, right. I push out a shop grind. I wait for it to come back and when it comes back approved, then I’ll start to procure and start to move on my products. And time is not our friend right now. Like I said, on the manufacturing side, it’s first come serve. You want to be at the front of the line. And then there’s the pricing side of thing. Generally larger projects are quoted you know, we obtain manufacturing quotes to get this level of materials in a certain amount of timeframe. Those quotes go out of expiration at this point. And it’s costly. Gone are the days where you can call in a favor and say, yeah, I realize I’m, I’m a week or two overdue.

 

Bob Katter (15:54):

But I need you to hold my pricing. Now, they’re gonna come back with a new price in this environment. So to me, that’s the discipline trying to work with my organization on is folks, these conversations that we’ve been able to have in years past they’re not there right now. You know, the manufacturers are having as your point Spencer or staffing challenges, raw materials, escalations their margins are getting squeezed. They’re not as likely to come back and offer us the same terms and conditions that we would get. Yeah. So to me, that’s kind of a shift. And I agree with you, it’s a change in mentality, I think, for the industry as a whole yeah.

 

Spencer Finseth (16:30):

All the architects and designers are having similar issues, right. Staffing issues. And we’re trying to tell them, by the way, we need more of this information sooner than later. Oh. And by the way, you’re having staffing issues. And, so how right. It’s just putting it is – pressure is probably the best word. Yeah. All over it is putting some pressure on it. And I think that’s showing with some cracks and that sometimes we’re hearing an excuse. So it’s COVID, or it’s that sometimes it’s not – COVID may have caused some of these issues, but now I think it’s, we all know the problems. We all know what’s happening. But it’s getting out in front of it. Yeah. And not waiting too long, not letting it fester. Yep. And then just eventually blame something that’s greater than just what we are. And so that’s what we’re trying to stay ahead of and not use that excuse.

 

Bob Katter (17:18):

I think COVID exposed, and to your point, exposed some of the, obviously again, the staffing shortage, some of those things, but I think in general it brought forth some of the, and a lack of a better word, complacency I’ve seen and just yep. I’ve reached out and I’m waiting to hear back and waiting is a word I don’t like to hear right now. Yeah. And again, working with our customers, right. We need to be thoughtful and wanna have, you know, diplomatic dialogue. Right. I don’t want to run around and force the issue on anybody, but our customers need to understand this is real so

 

Spencer Finseth (17:59):

Well, which leads me to one of my last questions. So we’ve got, we know the problems, we know some of the solutions, what are the technologies maybe that have come of this that are cool, that you maybe didn’t expect, or that you’re using a little bit more than you thought you would’ve?

 

Bob Katter (18:15):

Well, I would say, some of the manufacturing piece we’ve seen with COVID is the hands free initiative going to more automatic automated entrances getting away from, you know, the hand pull anything that might be a potential contamination point. So going to more of that type of technology, we’ve seen the manufacturers invest on that end of the business quite heavily, and try to come up with new products that align with the thought process where a public restroom, I don’t want to touch the door. I don’t want to have to pull on – Even before I’ve seen some this. Yeah. So we’ve seen a substantial push with that. Electronics continues to be a big push. I don’t know that as much COVID related you know, maybe a little bit of the security end, but that continues to be a big push part of it too is just technologies.

 

Bob Katter (19:11):

How can we operate faster?

 

Spencer Finseth (19:13):

And in your warehouse, how are you doing things different there?

 

Bob Katter (19:16):

Well, bar coding is an initiative we’re currently working on in the background and looking at, you know, receiving our incoming and scanning and putting it away and scanning, it goes back out the door. So we can better track our inventory as part of this I alluded to earlier, our inventory numbers have gone way up with this. And you’ve made that investment. Now you have to manage that investment. Right. So you’ve got more inventory to manage and if you don’t do it properly. Yeah. That’s not great.

 

Spencer Finseth (19:45):

So, well, you know, I think we could probably talk another four or five hours, but we’re trying to limit this to a quicker podcast. Is there anything else that maybe questions that I didn’t ask or you could think of?

 

Bob Katter (19:56):

No, you know, I mean, just keeping a watchful eye I don’t expect it to abate and I’m telling our staff, I don’t expect this to abate at least through mid next year. So I think this is our reality for the next six to nine months, and we’ll continue to manage our way through it, from our side of the business, you know trying to view it as an opportunity though, right. To get better, to be more efficient and, instead of, you know finding fault with it or blame or looking at this ways to reshape our business, to get better long term. So hopefully we will, and hopefully have more to talk about.

Spencer Finseth (20:32):

It’s happened here too. We are more efficient at what we do and how we get things done. And again, maybe putting that pressure upstream a little bit, that makes us a little bit more efficient and that continues the conversation, but we still need to be creative. Right. We still need to be able to be mindful of letting clients see what the market is, see what’s happening out there before they make the decisions and give them the the drop-dead dates. Like, Hey, we absolutely need to make these decisions by then. So your input’s been really great. I think we probably look at our procurement side of our schedule more than we ever have before. Right. Absolutely. Before clients just wanted to see the milestones and now procurements really become the big milestone inside of our deadline days.

 

Bob Katter (21:16):

Well, and it sounds like you’re being proactive about it. And to me, that would be the right message, right. Yeah. Because it is a different animal than it ever was. Yes. I’ve never said supply chain so many times in the last six months, so,

 

Spencer Finseth (21:31):

Well, cool. You know, thank you so much for stopping down for meeting with us. And we love having you as valued member of our team. Like I said, you guys are a huge part of it. You’ve been with us for a long time and we really do appreciate everything you do.

 

Bob Katter (21:43):

Sounds good. Great. Thanks. Thank you.