Key Takeaways:
- Manufacturers reported few capacity issues as they “right-sized” their inventory.
- Lead times shrunk to an average of six weeks.
- Manufacturers were cautious about stocking inventory in anticipation of a downturn in the economy.
By Dianne M. Pogoda
The supply chain might not be fully back to “normal” — or to pre-pandemic levels — but it’s getting better. According to the Q4 2022 NKBA/ John Burns Kitchen & Bath Market Index, manufacturers were back to their full (or nearly full) capacity in Q4, with very few reporting constraints, which is good news for inventories and job completion times.
Among the four major industry segments polled in the KBMI survey, manufacturers were the least positive, giving the overall index a rating of 58, a drop from their Q3 rating of 63.2. While still indicative of industry growth (a rating above 50 on a scale to 100), their Q4 score was a few points below the overall rating of 61, which included responses from designers, builders and retailers as well. Manufacturers also rated current business conditions lowest at 58.2, down from 66.5 in Q3 and below the overall Q4 rating of 61.4.
Anticipating a potential downturn in the economy, manufacturers had the least optimistic outlook for future conditions, with an even lower score of 51 compared to the overall rating of nearly 57. They expected Q1 2023 sales to be 1.5 percent higher than they were in Q4 2022, which is lower, yet again, than the figure provided by all segments combined — which was a projected 2.7 percent increase.
Positive Trends
On the plus side, manufacturers said project completions were up 5.8 percent in Q4 YOY, up from the 2.7 percent YOY improvement they cited in Q3.
Manufacturers, like retailers, reported that inventory levels moderated in Q4. This was partly due to strategic efforts to “right-size” inventory as well as softer demand. Both segments reported taking a cautious approach by not overstocking merchandise in case of a possible downturn in the economy.
In fact, 56 percent of manufacturers said they had the right amount of inventory on hand, taking into account current and anticipated market conditions. Just 14 percent said their inventory levels were lower than desirable, while 30 percent said levels were too high.
Additionally, manufacturers reported a YOY sales growth of 5.3 percent, an improvement from the 4.2 percent reported in the prior quarter. This is slightly higher than the overall KBMI YOY growth of 5 percent. The reason for this high growth was higher available capacity, which led to fewer inventory shortages, allowing manufacturers to fulfill more project orders in Q4 2022 than in Q4 2021.
Capacity Continues to Rebound
For the fourth consecutive quarter, manufacturers reported that their capacity was expanding. In Q4 2022, 77 percent reported no constraints on capacity, up from 60 percent in Q3 and a dramatic improvement from 14 percent in Q4 2021, when 80 percent reported significant capacity constraints.
Lead times also improved significantly. The average reported in Q4 was six weeks — with 78 percent reporting lead times of less than 10 weeks, compared to the 67 percent who cited lead times under 10 weeks in Q3. This is further evidence of supply chains returning to normal.
The KBMI research is conducted quarterly by NKBA and John Burns Research and Consulting to examine the overall state of the K&B industry, current conditions and future expectations, as well as challenges that executives are facing. The Q4 survey was conducted in early January, reflecting the latest market shifts and conditions, and netted 474 responses from NKBA members in the four main segments of the industry.
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