Roy Saunders, CEO of components distributor TKC, looks at the impact of ongoing supply issues and price rises and why suppliers need to adapt to support retailers through the challenges.
kbbreview’s January cover story gave me a wry smile – even Dr Miele couldn’t get hold of a dishwasher – what has the world come to! I suspect he’s not really rolling up his sleeves to do the dishes, but the message is clear – he shares our pain and recognises that supply issues are very real.
Over the past 18 months, supply, demand, and price increases have been more topical than at any time in my decades of KBB industry experience.
The market’s been booming through Covid as disposable income has switched from holidays to home improvements, working from home has spurred renovations to shape the living space and the housing market’s been on fire. This increased demand, though, while obviously very positive for our sector, has put numerous stresses on business, in particular with regard to the supply chain and pricing.
We’ve recently seen evidence of a bizarre situation where raw MDF suppliers would commit to meeting the order of our manufacturer, but wouldn’t acknowledge any purchase order and only confirm the price on delivery. Can you imagine booking a restaurant, looking at the menu online only to be told all prices would be confirmed once you got there. I don’t think so.
Price increases have become so common across the industry that, when you look at some of the facts presented to us, they’ve been pretty hard to even debate. The Italian National Association of Panel and Semi-finished Wood Products Manufacturers summarises raw materials as having increased by 20% to 40%, while MDF has increased by almost 60% since January 2020. I’ve got a friend who can’t get anyone to commit to pricing a garden fence job because the cost of timber is changing so frequently. Italian shipments have increased by 43% in a year, while the Far East has risen by 58% to 75%. Suddenly, an annual price increase of 5% doesn’t feel that bad!
That said, it’s in everyone’s interest to keep the momentum in the market going and not to kill it with exorbitant increases. I’ve seen one brand in our sector recently apply an increase of almost 20% and a rationing of orders at the same time. Who would have thought that would be acceptable three years ago?
Happily, our sector is handling price increases with better diplomacy and communication than our friends in the energy sector. EON’s recent decision to send customers socks as a way of keeping warm and help reduce energy bills was downright insensitive and daft, while Ovo offered tips on exercising, eating lentils, cuddling pets, and leaving the oven door open to benefit from residual heat. I’m sure lots of people in those businesses have had their bottoms warmed (excuse the pun) for gross incompetence. Simple, quality communication with as much notice as possible, is what every sector needs.
Product availability is, of course, the other major pressure across the industry, as highlighted by Dr Miele. Fortunately, I think we’re over the worst in furniture, although I always confess to being an optimist. Demand has clearly risen, but forecasting that demand by SKU (8,500 in our case) is one that even Tom Cruise wouldn’t take on in Mission Impossible. Our answer at TKC has been to increase stock levels by over £2 million and increase stock coverage on every SKU to smooth out big fluctuations in demand. Not an option for everyone.
As suppliers, we need to understand very simply that if a retailer can’t complete an installation, then they don’t receive all of their money. If the installation isn’t complete, then the consumer isn’t happy, the review isn’t favourable, so future work is in jeopardy. It’s a simple cycle, but one we have to move heaven and earth to make work. Retailers have been understanding but I for one am committed to ensuring the smoothest of supply chains and can’t bear anymore Covid ‘excuses’. It’s time for us all to adapt our business models and thrive and not just cross your fingers and hope for the best.