How to deal with rising construction supply costs:
- The surge in lumber prices in the past year has added nearly $36,000 to the price of an average new single-family home. Additionally, proprietary data from Buildertrend shows a 61.27% increase in price of lumber bids year over year.
- Phil Randolph, CBUSA’s vice president of purchasing, advises three strategies:
- Plan better and place orders sooner
- Be receptive to using alternative brands
- Implement escalation clauses
- Tech presents itself as another solution – allowing builders to better zero in on their financial costs and plan ahead for construction supply shortages.
There’s a lot $36,000 can buy. A trip around the world. Nine thousand Big Macs. Or just a little bit of extra lumber to finish building a home.
An analysis by the National Association of Home Builders found the cost of lumber reached $1,200 per thousand board feet in April. That’s a 250% increase from the same period last year – adding an average of nearly $36,000 to the price of a home.
Proprietary data from Buildertrend’s customer base echoes this skyrocketing trend. Lumber bids captured in our system continue to rise exponentially with each passing month. Things started off slow enough – the third quarter of 2020 saw just a 1.82% increase year-over year. That jumped to 30.03% for the last quarter of 2020. However, our most recent data shows a whopping 61.27% increase when comparing the second quarter of 2021 to 2020.
Whoa. That’s more than just a little jump. We’re blasting off to record highs – going up, up, up with seemingly no slowdown in sight. So, what are construction teams like yours to do? Just strap in and brace for liftoff?
To help bring things back down to Earth, we spoke with Phil Randolph, vice president of purchasing at CBUSA. Recently acquired by Buildertrend, CBUSA has spent the last 17 years building the nation’s premier home building network made up of the best builders, suppliers and manufacturers in the country. Their elite Builder Members have the combined purchasing power of a top 10 national builder.
In short, CBUSA knows how to get builders the most value for their money – and Phil shares how that’s done in today’s volatile environment.
What are some of the reasons the industry is seeing such drastic surges in material costs?
Phil: In general, we are seeing an environment of supply and demand. That means dramatically increased demand for diminished construction supply.
Causes for demand increase include:
- Lack of new housing during housing crash
- Migration from certain states to others – California to Texas, New York and New Jersey to the South
- COVID-19 has increased the work-at-home ranks. If someone can work at home, they don’t need to live close to the main office and can move away
Causes for diminished construction supply include:
- Elimination of lumber and plywood mills prior to 2018
- Impact of COVID-19 on the employees of mills reduces the capacity to produce
- Worldwide COVID-19 impact on factories across the world that make parts for a large portion of products used in housing
- Winter storms that devastated mills and factories in the South
- Trucking and railcar shortages across the country
What are the three biggest tips you have for builders to offset rising supply costs?
Phil: First, builders can’t rely on historical lead times anymore. They need to place orders sooner. Second, teams should be receptive to alternative products versus the brands they’ve always used. Being flexible on brand usage while working closely with your supply partners is critical to completing a project. Even with planning and forecasting, there still may be unforeseen increases that will have to be added to the project.
With that in mind, lastly, you want to protect your margins. To do so, implement escalation clauses with clients from the start. The last thing any contractor wants is to eat the costs. I do feel that cost of lumber is about to fall substantially, but panels remain on the up trajectory. If demand increases, lumber will again make a run up.
Should customers be paying for these added costs? When does the responsibility fall back on the contractor, if ever?
Phil: Builders typically plan for some fluctuation in their bids. However, the increases in prices have been so frequent that it has outpaced any reasonable forecasts. Customers will have to bear the brunt of these increases.
How does CBUSA help builders obtain supplies at a competitive cost?
Phil: CBUSA helps builders obtain competitive cost advantage in two ways. First, we negotiate at the local chapter level by executing group buys on commodity items like lumber and plywood. Second, we execute exclusive deals with top manufacturer partners that help define price, rebates and price locks on brand specific products.
CBUSA Builder Members, in most areas, are not paying a premium. In fact, we’ve seen in most cases that price comparisons show the CBUSA price is more competitive.
With these surging supply prices in mind, why is it more important than ever for contractors to consider working with CBUSA?
Phil: As mentioned, we provide exclusive programs with national suppliers. Also, we aggregate the volume within our markets to buy commodities in larger volumes. Plus, local chapter meetings bring builder members in a city together and provide a format for them to discuss what is happening on a local basis and make better decisions for their companies.
How might construction tech like Buildertrend help teams mitigate these high prices?
Phil: The data that tech has around timing and buying habits could be a way that software helps the supply chain understand the needs of builders.
Make construction software your solution
In today’s environment of high prices and low supply, construction tech presents itself as another opportunity to mitigate risks. If you’re a Buildertrend user, consider this:
- Scheduling allows you to map out jobs – months in advance. You can plan around slower lead times to order lumber further in advance, keeping your jobs on deadline and clients impressed.
- Financial tools like the Budget and Bids can be employed to track money in and money out. With these features, you can compare actual costs versus the estimate. This allows you to better forecast future jobs and make every penny count.
- Unlimited document storage keeps details organized by job and protects your bottom line. All those contracts with escalation clauses? Keep them safe and sound in software.
Combining Phil’s advice, the power of our platform and a network like CBUSA empowers teams like yours to stay competitive in a time when it’s never been harder to do so.
If you’re not already a Buildertrend customer, demo our software and see the change it can make for you today.
