Top Takeaways:
- A growing number of manufacturers are being haunted by long lead times.
- More than 4 in 10 in the sector have discontinued product lines this past quarter to focus on their most profitable SKUs.
- Increases in hiring, warehousing and new equipment are all on the table as manufacturers struggle to meet customer needs.
By Robert Isler
While all kitchen and bath sectors face similar supply chain disruption, runaway costs and labor challenges, perhaps more than any other, Manufacturing faces a unique set of issues that require creative solutions to overcome.
According to feedback from the Q1 NKBA/John Burns Kitchen & Bath Market Index (KBMI) report, lead times have become a significantly larger problem in just the past quarter. In the fourth quarter of 2021, 23 percent of manufacturers reported lead times of more than ten weeks. That number has ballooned in this past quarter to 31 percent, with half experiencing delays of 4-6 months. Although severe capacity restraints have softened from the past two quarters, when 80 percent of respondents reported facing that challenge, three in four manufacturers are still dealing with serious capacity issues.
42 percent of manufacturers discontinued product lines in Q1 to increase efficiencies and margins, with half doing so permanently.
To address these challenges, manufacturers are investing in new equipment to reduce lead times and increase productivity. At the same time, they are taking a hard look at current product lines and shutting down those that aren’t performing at maximum efficiency. In fact, 42 percent discontinued product lines in Q1, an increase over the 36 percent who did so in the previous quarter. Half have indicated those shutdowns are permanent. Instead, they are focusing on top-selling SKUs that help them maintain margins. As one respondent noted “We are discontinuing lower volume lines for added capacity for our most popular products.” Another stated flatly “We’re putting the most important SKUs at the top of the list.” A third is focusing purely on expansion to address the capacity constraint issues, saying “New machinery was purchased and we are also carrying more stock.”
Among the positives, over three times as many manufacturers are seeing higher price points from customers as lower. Availability has become a top competitive purchasing decision. In response, many have shifted capacity towards high-margin/high-volume products.
As for the challenges manufacturers share with other segments, skilled labor shortages are near the top. Three-quarters of those in manufacturing surveyed indicated they are raising labor rates, at an average of 15 percent. Although steps are being taken to increase automation, it hasn’t impacted the need for workers, especially as backlogs increase. Said one respondent “We extended the production schedule to seven days a week and added a night shift to try and make a dent in our backlogs.” Others are increasing investments across all areas, hiring more staff, increasing warehouse space and making capital investments in both new equipment and new lines. While the need to address brisk business is not a bad problem to have, manufacturers must constantly be on their toes to take advantage of the good times by supporting appropriate supply levels for their clients without sacrificing margins in the process.