Learning From Supply Chain Setbacks

This perfect storm of disruption, shortages, delays and price increases was bad news for distributors. And a new threat — inflation — promises to further strain the business. But there may be some good news, too.

“COVID also caused a widespread awakening to the vulnerabilities baked into our lean, cost-optimized supply chains,” says Vakil. “It has brought a greater focus on the need for building supply chain resilience capabilities.”

That resilience could come in the form of diversified manufacturing. Companies are already looking beyond China, building plants in other parts of Asia or beyond.

“The pandemic really brought to the forefront how reliant we are on overseas manufacturing, because it is so much cheaper,” says Trinks. “My company just opened a production facility in Guatemala based on the costs alone.”

Vakil strongly suggests businesses throughout the industry not only keep an eye on their suppliers but also on their suppliers’ suppliers.

“To build a more resilient supply chain, it’s vital to look at even the most inexpensive parts and materials when they are critical to products and revenues and not just expensive, sophisticated, or specialty items,” she writes in the Harvard Business Review article.

Building service contractors are hearing this message loud and clear. Clement reports that the biggest, fastest-growing BSCs are evaluating their supplier arrangements to make sure that they can deliver.

“Smaller mom-and-pop companies do not have the ability or business acumen to plan ahead,” he says. “But more commercially-oriented companies are planning for this. If there is another shortage, they want to be prepared.”

But no matter how well a supply chain is managed, costs are going to go up. This could be due to shortages, either of materials, labor or inflation, or all three. No matter, jan/san customers may have a hard time swallowing the news. There are, however, ways to communicate the new reality to clients.

“Costs are increasing, inflation is here,” says Humsi.

He reports that BSCs are dealing with this by adding surcharges to signal a short-term price increase. Also, while a surcharge suggests that the price increase is temporary, it is only a suggestion.

“No one wants to give price increases back,” says Humsi.

Jan/san distributors could try the same strategy. After all, BSCs experienced phenomenal growth over the last year, with 80 percent reporting improved profit margins in 2020, according to a survey of Building Service Contractors Association International (BSCAI) members conducted by Simon -Kucher & Partners. Jan/san suppliers could try to claw back some of that profit.

But there is a new threat coming — and this time, it is directly from end user customers.

“The fastest growing BSCs are three to four times more likely to get into supply distribution as well,” says Clement. “They see this as another opportunity for business expansion and growth.”

While no crystal ball exists, distributors should continue to follow the market on a daily basis and connect with consultants to best prepare for supply chain challenges ahead.

Amy Milshtein is a freelancer based in Portland, Oregon.