Weathering Construction Supply Shortages Amid the Pandemic

Normally, the early spring is an exciting period for construction, but COVID-19 has changed everything. Price increases and project delays are becoming commonplace. Here are some tips to help contractors survive the wait.
By Farhan Ahmad
April 1, 2020

It should come as no surprise that the COVID-19 global pandemic hasn’t impacted all industries equally. Some businesses, including department stores, traditional restaurants and childcare centers, have suffered devastating losses as a result of stay-at-home orders and social distancing protocols; others, such as food delivery businesses, digital advertising agencies and subscription services, are experiencing unprecedented surges in sales.

Unfortunately, the construction industry has been disproportionately impacted by the crisis. Normally, the early spring is an exciting period in which contractors are building crews and doing a lot of planning for the busy season—but COVID-19 has changed everything. Price increases and project delays are becoming commonplace, and in some cities, such as Boston, construction projects have been banned altogether.

An especially painful reality for commercial and industrial business owners right now is that it’s becoming increasingly difficult to obtain essential materials from the overseas suppliers they rely on—especially those in China, where quarantines, curfews and other public health measures by the Chinese government has reduced its manufacturing sector to roughly 30% of its usual capacity. Because China has moved past the most difficult part of its pandemic and is currently trying to get its infrastructure back up and running, some manufacturing sector experts predict a six-week to three-month recovery cycle for the supply chain to return to business as usual, but it’s difficult to know for sure if that’s accurate.

Just as COVID-19’s impact to industries was unequal, supply chain recovery times will be unequal as well: businesses in the chip and tech industry will be able to receive the supplies needed more quickly because the Chinese factories that produce chips and other hardware were operating 80% or 90% efficiency. But businesses in construction (roofing contractors, for example, which relies on collated roofing nails, 90% of which are made in China) may, unfortunately, have much longer wait times.

So, how can contractors survive the wait?

The first step is to take control of cash. Contractors may see a 30% or even a 50% decline in business, so they will need to reduce costs to match. It's always advisable to have some cash aside to ride out a month or so of bad business, but in these times, businesses should look at creating a bigger emergency cash fund in case the slow-down gets extended. Establish a system to review cash flow on a daily basis and examine revenue and expense initiatives.

Contractors should next develop a 12-month survival plan that shifts the business from growth mode to survival mode, because now is the time to hunker down and preserve cash. During the next few weeks, construction business owners will likely continue to see canceled and delayed jobs, and experience building owners who are taking a pause on conducting renovations.

Now is the time to cut out non-essential expenses. Businesses tend to sign up for recurring products and subscriptions over time and don't always remember. Cancel them, and take a microscope to all those expenses (recurring and non-recurring) and ensure you're not paying for items and services that are non-essential. It's indisputable that for most businesses, revenues will decrease in these times, so business owners need to switch their focus on limiting expenditures to keep things running.

Once contractors developed an expense survival plan, they should focus on strengthening customer relationships with customers. Unless the business was clairvoyant and hoarded inventory in anticipation of the COVID-19 pandemic, there’s absolutely no way to have averted this crisis, and customers should understand that.

Give customers a reason to stick with the company despite supplies shortages. Tell them that the business want to do the best job it possibly can, but because it’s reliant on materials from overseas suppliers, it may not be able to finish the job for the next three months. Ask, “How can we work out a deal where you’ll be patient for three months, and then we’ll get back to the job?” Focus on making customers allies. This is the time to establish a stronger relationship with them and recover together. If a business develop practices that humanizes it to customers and adds tangible value for them at this incredibly stressful time (for example, some smaller contractors have done free grocery delivery for their customers), contractors reap the rewards for years to come.

Finally, remember to be empathetic to customers and employees at this time. A contractor is only as good as the people who work there, which is why businesses should prioritize employees’ physical and mental health during this time, as well as their ability to come to work. Employees with young children will see their working hours limited by public school closures, and employees who rely on public transportation to get to work will be impacted if public transportation shuts down. Even if business is operating as usual, contractors may want to implement a ban on nonessential travel to prevent an outbreak. It’s a smart move, and a compassionate one as well.

by Farhan Ahmad
Farhan Ahmad is the Founder of Bento Corporation and serves as its Chief Executive Officer. Mr. Ahmad served as Managing Director at Barclays and Global Head of Emerging Payments and Prepaid for Discover Financial Services. He held significant leadership roles at JPMorgan Chase, Bank One and FirstUSA. His passion has always been with small companies. He built 2 successful businesses: Chase HealthAdvance, an independent healthcare business within JPMorgan Chase and Aceva Technologies. He was able to build elegant solutions that replaced unnecessarily complex products.  

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