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Building your business in the construction materials industry

Overview of the construction materials industry

One major area of wholesale distribution is the Construction Materials Industry. The construction materials industry includes suppliers of the raw materials used by construction firms when building commercial and residential properties. This means that basic materials such as brick, stone, concrete and cement in addition to wood, lumber, wood paneling and mill work products fall into this category. Additionally, distributors also supply roofing, guttering and insulation products.

Construction Materials - stacked lumber

There is a secondary market with associated products for the sector such as glasswork, wire and fencing are also supplied. With such a wide variety of products within the construction materials industry, it becomes very important for wholesale distributors to exercise good stock control to maintain profitability. The construction and building materials industry is often difficult to track because it is wholly dependent on the trends of the building industry.

Fortunately, a rise in urbanization and expanding industry coupled with a growing population and economic growth has seen the sector grow considerably. It is predicted that the global industry in construction supplies will reach US $1.1 trillion by 2020.

Challenges within the industry

While the future of the market appears bright, the industry is highly competitive, and there is a specific set of challenges that threaten distributors in this sector:

Cyclical demand

Demand for the materials used in construction is very seldom constant. The construction materials industry is affected by seasonality, with the summer months seeing the bulk of outdoor construction activity. There are other, more economical factors affect the industry as well; interest rates affect the cost of mortgages and loans, so periods of high interest rates will stifle investment in construction.

The diverse range of products supplied to the construction industry means that wholesale suppliers of building products have to be sensitive to changes in market demand. Overstocking supplies for deteriorating markets can result in inventory obsolescence, and a failure to identify and exploit emerging market trends will result in lost market share. Efficient and effective inventory control monitoring is critical to managing cyclical demand in the construction materials industry.

Changes in demand for different product types

Within established and emerging markets, there will often be changes in demand for different products. Consumer preference can change as quickly as wind direction and something as simple as minor changes in hardwood flooring trends can wreak havoc on a distributor’s inventory plan and forecast. Changes such as these can be costly if a distributor is caught carrying a large quantity of product that is no longer inline with consumer’s style or desires.

Another growing trend is the drive towards sustainability in the building trade; new products such as solar panels and super-efficient triple-glazed windows are seeing an increased demand among consumers concerned about environmental impact.

The challenge for wholesale building suppliers is identifying these popular trends before the competition does. High-level communication with builders regarding trends within the market are key to developing insight into the industry. Even just having technology in place that alerts inventory purchasers of shifts in demand can give a wholesale distributor a competitive edge and keep their business relevant.

Wholesale suppliers to the construction industry are one step removed from the end users, so extra time and analysis needs to be made to stay ahead of the curve when identifying new products to stock or what products might become obsolete. Smart demand forecasting tools like EazyStock can help make this management easier and more sustainable. Good inventory optimization is paramount in this industry, but it relies on having a stock control system that operates in real-time.

Construction Materials workers collaboratingWith the unit costs of some construction products being high, tactics such as ABC analysis of inventory stock levels can help to prevent stock outages or overstocking. In-depth weekly and monthly analysis should be conducted to manage the cyclical nature of the industry by using past data for forecasting and procurement.

The data produced by the stock control system can also be used to identify sudden changes in product demand. Used alongside market analysis, distributors are able to identify emerging product and even declining product trends.

Best practices

For distributors in this sector, here are some guidelines to increase and retain market share:

Monitoring emerging and deteriorating markets
It is important for suppliers of building products to have contacts at all levels within the trade to identify opportunities for growth within new markets. Knowledge of areas of investment in large-scale building projects can help suppliers to develop a strategy to exploit these opportunities.

Similarly, knowledge of declining trends in current markets can help suppliers to reduce their focus in those areas and knowing what areas are declining can lend insight to what new areas will be coming to the forefront, allowing distributors to find and retain new customers in areas of high investment. To continue with the environmental sustainability example, identifying a decrease in demand for incandescent light bulbs points to the logical prediction of a demand for a different type of light bulb – such as LED or halogen lights.

Use real-time data to gain a competitive advantage
Having an inventory management system or software in place to analyze data of past sales history and purchasing trends helps distributors keep an eye on their seasonality and demand shifts. Suppliers with visibility into seasonality are more equipped to establish lean purchasing habits to offset the risk of excess inventory of low demand products. Using real-time data extends suppliers more flexibility to reduce stocking levels before quiet periods, freeing capital tied up in inventory and moving stock to where it is needed in the distribution channel.

Getting prepared with optimization

The best way to stay ahead of the competition and to maintain relevancy in the industry is to constantly be prepared and looking forward rather than belatedly reacting to market changes. The best way to be perpetually prepared is by optimizing your business and warehouse locations.