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One of the challenges contractors face is figuring out how to get materials and equipment delivered at the right time that fits into the project schedule. It is a delicate balance at times because as far as a manufacturer is concerned, the warranty on the equipment starts the day it leaves the dock at the factory. If the equipment stays on the job too long before the contractor’s one-year warranty starts, the contractor is on the hook for any material cost if the manufacturer’s warranty expires before their warranty does. If the equipment has a long lead time, other trades may be required to work out of sequence until the equipment arrives. Then, the contractor gets a daily earful like, “When is the equipment going to get here, and how fast can it be put into place?”
Recently we performed a renovation project that included a new outside air unit. The engineer had specific features he wanted on the unit, and as a result, we were locked into a specific manufacturer. The overall project schedule was about three months, and it took about a month to get through the submittal process. Once we released the unit, we were informed that the factory was overwhelmed with orders, and as a result, its production cycle had been pushed out 14 to 16 weeks. My response was, “Good grief, why does it take so long?!”
My experience over the years has been that the best way to know the answers to these types of questions is to try to get some insight into how that industry operates. I decided to reach out to two individuals that are in different aspects of the plumbing, heating and cooling manufacturing world; Bruce Carnevale is the president of Bradford White Corp. (water heater manufacturer), and Chen Lin is the plant manager of the Trane plant (fan coil units and self-contained units) in Macon, Georgia. I wanted to understand what their challenges are, and what we as contractors can do to avoid the “catch-22” situation I described above.
Charles Chip Greene (CG): What are some factors that contribute to long lead times from manufacturers?
Bruce Carnevale (BC): There can be multiple factors — sudden increases in order volume due to such things as natural disasters (Hurricane Sandy that struck the northeast for example); significant product changes due to regulatory requirements (NAECA III for example); price increase announcements; significant increase in new customers; or simply unanticipated strong demand. Also, there can be a shortage of raw materials or key components, which require a manufacturer to scale back or cease production for a limited period.
Chen Lin (CL): Since coming to the Macon plant, I have been trying to figure out how we can make a “vanilla box” that is a standard fan coil or packaged unit that we can make lots of, all the time, and ship them quickly. However, there are so many options on the equipment that we offer, and it seems that there is no consistency of the options that we include the most. It takes 60 minutes to make a fan coil unit once it gets on the production line, but until everything is here to make the unit, it can’t be produced or shipped. Also, it may be a special order that is possible, but perhaps we have never done it before, so we have to engineer it and procure the components.
CG: Sometimes lead times get pushed out due to demand. When this happens, what measures are put in place to overcome it?
BC: The manufacturer has two basic strategies in this situation: increase production or reduce demand. Frequently a manufacturer will do both by running overtime and putting in place order allocation.
CL: Many times this occurs during peak season for a particular product (e.g. summer break for schools). We either work overtime to get over the temporary surge, or perhaps add a second shift.
CG to CL: Manufacturers are facing the same workforce strategies as contractors; where do you get the people for a second shift?
CL: We have relationships with companies who specialize in providing talent on a temporary basis to help us staff the second shift.
CG: We’ve seen where smaller manufacturers get acquired by larger ones, and when this occurs, the volume of orders increases so much that the plant is overwhelmed. When acquisitions occur like this, what changes does the new parent company attempt to put in place to prepare for this increased business?
BC: There are short-term and long-term strategies that must be employed. Short-term overtime is a strategy, but you can’t run overtime forever. So ultimately the manufacturer must do an in-depth analysis on their demand over the long-term and determine the capacity they need to have in place to meet that demand. Many factors go into these types of analysis (Bruce indicated this was a more in-depth discussion).
CL: Trane is owned by Ingersoll Rand, and it has a model it implements with every division called Business Operating Systems. Basically, while the divisions may make different things, the business processes are very similar. Ingersoll Rand implements this model in stages; perhaps starting with purchasing, then accounting, various aspects of production, etc. until it is fully implemented. The journey may be painful, but in the end, it is smoother.
CG: From my experience long lead times are especially troublesome to contractors on short duration projects. Is there anything the contractor can do or questions they can ask that might help with these types of issues?
BC: There is so much potential to improve the communication between the contractor and the wholesaler, and between the wholesaler and the manufacturer. We’ve had many instances where a wholesaler has raised the issue of extended lead times, and we’ll say, “Your orders are up 25 percent over last year. Do you know what is driving this demand?” The answer is usually that the wholesaler doesn’t know, because their contractor customers didn’t share with them the current states of their businesses. There are several technologies available today that can help each partner in the channel better understand and anticipate demand, but there is so much more that we can do to move from a reactive business forecasting model to a more proactive one. If contractors and wholesalers can forecast their needs more accurately and communicate that with manufacturers, we can better prepare for demand fluctuations.
CL: Communication from our customer is critical. We don’t want to rush out a product and sacrifice quality and have an unhappy customer. However, are we doing more than what the customer really wants? What will be the customer experience if we do this? Will they want to use our equipment again because of certain aspects or features that we provide on our unit? Or are we providing a feature that makes no difference to the customer and adds no value to the performance of the unit? By having this dialogue, we may be able to omit a feature on a product that could speed up us in being able to get the unit into production and reduce lead times.
There is no magic bullet to this issue. However, with a little planning and communication, we may be able to make this process a little less painful for everyone.