Better, Worse and Totally Unpredictable
Three years after it all imploded, Connexus checks in for an update on the supply chain.
By Shaila Wunderlich
In March 2023, the Federal Reserve declared the global supply chain officially “normalized,” leaving many in the multi-site facilities industry wondering whether they’d missed a memo. Certain metrics, such as lead times, have indeed improved. Others — like HVAC and servicing — remain volatile as ever. “You can’t really say it’s better, and you can’t really say it’s worse,” said Robbie Drake, Senior Manager, Operations Maintenance at Murphy USA. “The only thing you can say with confidence is that it’s different every day.”
Connexus has tracked the supply chain saga — and multi-site facilities managers’ response to it — since it broke in spring 2020. Here we check in with Drake and a few of his FM colleagues for an update on where they stand today.
Better: Lead Times
They’re only slightly better than their COVID-era lows (and still 66% worse than their pre-COVID standard), but FMs are nevertheless delighted with the recent uptick in manufacturing lead times. “Especially with trades that have more standard, on-hand parts, like plumbing and electrical,” said Catherine Barnes, Vice President of Facilities and Energy Management at Rite Aid. “We’re pretty much back to baseline there.”
Further easing the burn of COVID’s historic delays are workarounds developed and honed over the past three years by FMs and suppliers alike. At the top of that list: implementing safety stocks. “If there is one ‘theme’ of the moment, it’s that everyone’s clamoring for inventory,” said Jim Owens, Chief Growth Officer at digital supply chain company SDI.
Of course, building a safety stock entails more than just ordering extra quantities. “Our first question to clients who say they want safety stock is, “Of what?” Owens said. “And we often get a deer-in-the-headlights response.”
SDI’s technology and expertise specialize in building informed, efficient inventories. “We help shape their thinking around what type of inventory they need, what they don’t need, where to find it, where to store it, and how to secure it,” Owens explained.
Owens recently has seen suppliers intentionally inflate lead times as a way of mitigating client expectations. “They’ll schedule it at two or three weeks out, and then the item arrives in one to two days,” he said. “Then, a month later, it’s back to a four-week delay.”
While he understands the intention behind the move, Owens said it can have the unintended consequence of mucking up schedules. “It’s not that there’s anything nefarious happening; it just creates uncertainty,” he said. “It makes it impossible to plan or predict anything.”
Same or Worse: HVAC & Refrigeration
Taking exception to lead times’ upward trajectory is the HVAC category, which continues to be a bane to every working FM in the country. “It’s directly tied to customer experience,” Owens said. “If someone is overheated and sweating inside a store, they’re apt to leave and never come back.”
“We try to pre-order replacements to get ahead of the lead time, but I don’t see it getting any faster any time soon,” said Barnes. “We’re still looking at about a year out for the type of units we need.”
Barnes reports refrigeration to be slightly better (eight to 12 weeks out versus 10 to 22 during the pandemic years), but nowhere near the pre-COVID standard of two to five weeks.
If there is a silver lining to the ongoing HVAC crisis, it’s that though significantly delayed, units are at least available. “Last year we had no other option than to repair,” Barnes said. “This year, we’ve been able to replace some even though it caused us to be down a while.”
“We’ve determined it’s often worth the risk of being down a unit for several weeks if, in the end, we’ll have a brand-new unit we know isn’t going to break down again weeks later,” she continued. “The decision to repair or replace is still challenging, but our focus is to ensure we have equipment operating for our customers while making the best business decision we can.”
Totally Unpredictable: Pricing
On the bright side, prices have decreased at the contract level. And supply and materials costs aren’t necessarily skyrocketing. “We’ve documented a 9.3% increase year over year on our base items, but the month-to-month averages have leveled out to zero in Q1,” said George Reimann, Director of Procurement at EMCOR Facilities Services.
What prices are doing is keeping FMs on their toes. “They’re different every day,” Barnes said. “It could be the same part from the same supplier, but the price changes simply due to the fluctuating market and supply-demand.”
Barnes relies on Rite Aid’s solid partnerships to navigate the sticky circumstances surrounding pricing. “We’ve incorporated checks and balances with our suppliers to show us where they sourced the part from and to confirm pricing. Price auditing has always been part of our contracts, but now we incorporate it at proposal level, due to fluctuation in costs.”
“If you’re working with a supplier who you’ve built a relationship with and who has a large percentage of your portfolio, that’s not an unusual ask,” Barnes said. “To be able to have that transparency to say, ‘We understand what’s going on out there; we’re all facing it’ — that’s a candid conversation. These are partners who are looking out for you every bit as much as you are.”
At EMCOR, Reimann and his team are several months into the rollout of a new procurement app meant to help their field technicians quickly obtain comparative pricing. “We expect it will drive the business to spend less by working with fewer preferred suppliers with whom we’ve negotiated pricing,” he said.
FMs aren’t pretending to know what’s next in the supply chain saga. But they at least know to be ready for anything. “It doesn’t have to be a pandemic to turn everything upside down,” Owens said. “It can be a labor strike, natural disaster, geopolitical event or something we haven’t even thought of.”
“There are several things coming down the pipeline that are top-of-mind for every FM right now,” Barnes said. “The skilled-trades shortage, the EPA changes on refrigeration — it’s all going to impact how we do business.”
“We’re paying attention now,” Owens said. “We’ve been blissfully ignorant for too long.”