Is supplier capacity costing builders?
Maintaining the right balance between project timelines and supplier coordination is crucial. One area where builders are facing a significant impact is in their network’s capacity, particularly for key jobs like steel fabrication, frame and truss, windows, stairs, and cabinetry. These jobs are often the most susceptible to quick changes in supplier lead times, and the impact on winning work or retaining profit in a project can be substantial.
BuiltGrid data demonstrates how reduced network capacity impacts the builder’s profits. The data shows the biggest variance in material costs stems from suppliers with longer call-up times. For example, when a supplier has a lead time of more than 5 weeks, the pricing for that job is 18% higher (average) compared to suppliers with a lead time of 5 weeks or less.
Real-world example: Steel supply and lead time
Why the lead time gap matters
- Need for work: Suppliers with more work may price for profit.
- Type of project: Less desire for time-consuming projects may drive prices up.
- Operational strain: Overburdened teams can lead to short-term labour cost increases.
- Labour costs: A short-term labour cost increase can lead to higher average hourly rates.
- Production flexibility: Increased capacity restricts the ability to adjust production schedules.
- Raw material costs: Fluctuating material costs can impact quoting as average costs adjust.
