January 6th, 2022
2022 Is Here- Are you Ready for the Ride?
We will see four major trends in 2022. Let’s get started with the best one: sales will continue to grow. People are buying new homes as fast as they are being built and existing homes are being sold in hours. Who reading this has not received at least 10 texts, calls, or emails from random strangers offering to buy your existing home on the spot for cash? Existing homes are oftentimes remodeled prior to being sold, and if not, they are usually remodeled right after being sold.
Windows and doors are a big part of these remodeling projects. Escalating lead times of windows and doors also cause demand to rise. For those of you with teenagers, I call this “the Play Station Factor.” Just tell someone they cannot have something right away and that they will have to wait months to get it, and they will want it even more! So, homeowners who even think they will need new windows in the next year or so are ordering them now simply because it takes so long to get them. Current lead times for windows and doors are running anywhere from 10 weeks to 8 months.
The second trend we will see carrying forward into the New Year is that labor costs will rise. Minimum wage workers in 24 states across the country experienced a pay bump in 2021, according to the U.S. News & World Report. A similar number of states are expected to increase their minimum wage in 2022. As of Dec.3, 2021, 15 states had already announced wage increases, including California, Massachusetts, Ohio and Virginia. In Ohio, minimum wage for non-tipped employees has increased from $8.80 per hour to $9.30 for 2022, according to the Ohio Department of Commerce. Meanwhile, House and Senate Democrats have introduced the Raise the Wage Act of 2021 to progressively increase the federal minimum wage to $15/hour by 2025. Check out this article about minimum wage trends. So, not only will workers continue to be in short supply, they will likely cost you more per hour to employ if you are fortunate enough to find them.
The third major trend to look out for relates to the Supply Chain. While it is expected to improve somewhat over the chaos of 2021, Supply Chain issues will continue to be a challenge in 2022 and perhaps even into 2023. What happened during the pandemic to cause these supply chain issues? This excellent article by Anshu Siripurapu does a great job of explaining the various factors that contributed to the upset in the global supply chain that has caused interruptions in supply across many industries not just windows and doors.
Have you ever heard of the Bullwhip Effect? It is a phrase coined by Hau Lee, a Stanford business school professor. Lee made up an analogy comparing what he observed while watching a cowboy cracking a bullwhip. A cowboy’s hand may only move a few inches, but there is a significant ripple effect going down the length of the whip, which grows larger until the tip of the whip snaps high into the air. This “bullwhip effect” explains how seemingly small shifts in demand for certain goods can ripple up the supply chain, causing bigger and bigger swings in production. Unable to predict the future, retailers introduce errors when they scale up their orders in response to their perception of growing demand. Wholesale suppliers in turn magnify that error when they adjust their own orders to manufacturers’. Even more error is introduced when manufacturers order raw materials from their suppliers, and so on. The further up the supply chain, the more demand signals become distorted.
Then there is panic buying.
We most definitely saw this happening as well last year. Manufacturers worry that they will run out of components so they order more than their current production demand would normally dictate. This makes the problem even worse and in the end, many of them did run out simply because they, along with others like them, bogged down the suppliers’ production machines even further.
We had suppliers saying, “If you place your order in November then you will get it in May. This caused several suppliers to end up pulling the plug on all existing orders and doing a total reset, similar to when your computer gets bogged down and you have to reboot or hit “ctrl-alt-del.” Moving forward, the most pro-active steps you can take to help assure a steady delivery of materials and components is to provide accurate monthly forecasts to your supplier, improve your supplier relationships and pay your bills on time. I know a few suppliers that actually “fired” some of their customers in an effort to better service the ones that they deemed most loyal and more desirable.
The fourth trend that we are likely to see in 2022 is an increase in mergers and acquisitions. Well already in the first issue of [DWM], we see Great Day Improvements acquiring Champion Windows as well as R/S Specialties acquiring the assets of America Building Products. We also see newly acquired (by MI Windows & Doors) Sunrise Windows breaking ground on a significant plant expansion in Temperance, Mich..
When it becomes increasingly difficult to smoothly operate a company to achieve corporate goals or perhaps a quicker path is sought to achieve more profitable results, the owners of a company may start revisiting core competencies. If the company has a few chinks in the armor, leaders can try to repair these shortcomings, but this takes time. If you lack a certain resource or capability, then goals can sometimes be reached more expeditiously by merging with or acquiring another company that compliments your business. Acquisitions can sometimes help forge a more direct path not only to reach operations objectives, but sales and marketing goals as well. The more challenges we see that are related to labor availability, component costs and supply chain disruptions, then the more we will see in terms of mergers and acquisitions to help immediately address these concerns resulting in a stronger or more agile organizations which can potentially out- maneuver their competitors.
Indeed 2022 will be another challenging year but also has the potential to be a spectacular year for those companies that can successfully navigate through the sharp turns and bumps in the road. So, strap your seatbelt on and stomp on the gas!