Anticipate These 2023 Building Materials Distribution Trends

The building materials and construction industry is one of the most visible indicators of the health of an economy. After the doldrums of 2020, many companies bounced back with record growth, but the future is cloudy. In this post we look ahead to 2023, with a focus on the distribution side of the construction supply industry.  

The Building Materials and Construction Sector Enters a Cloudy 2023 

If recent years have taught us anything, it’s that crystal balls should come with fine print. Forecasting the 12-month outlook for any industry is an exercise in caveats. That said, there are real material factors that are already impacting the building materials and construction sector as we close out 2022.  

For instance, we can be reasonably sure that demand for new homes will flatline in year-over-year measurements, a consequence primarily of rising interest rates. Conversely, home remodels and upgrades should see an uptick, in addition to the already long backlog of projects that exist.  

While signs have pointed to stabilizing supply lines, certain common materials project to remain scarce for the foreseeable future. This could lead to continued price hikes in certain categories while prices drop precipitously in others.  

“Plan for market conditions to get worse before they get better,” writes Construction Dive. 

We can’t be certain whether a full-blown recession or “stagflation” will materialize in 2023. We do know that industry leaders such as Builders FirstSource are already cutting jobs. The company made $23 billion in revenue in its last fiscal year – up from $7B as recently as 2019 - as the price of lumber skyrocketed, but are clearly preparing for a continued downturn.  

 At his Zilliant MindShare 2022 keynote, noted Futurist Daniel Burrus proclaimed that: 

“Most of us don’t spend a lot of time with trends. Why? Because some happen and some don’t, and hey, things change, so that makes all the trends bad, right? Wrong…You need to plug into your future. After all, that’s where you’re going to make all the rest of your money, so maybe we ought to think about it a little bit more.” 

Let’s take Burrus’ advice and explore two interlinked trends that manufacturers in the building materials and construction industry must anticipate and proactively manage as we speed toward a new year. To do so, we’ll lean on some insights from Craig Webb of Webb Analytics.

Listen to Craig’s recent appearance on our podcast: 

Trend: Volatile Construction Materials Market

Pandemic-driven supply chain issues have been impacting building and construction materials suppliers since late 2020, and the effects are still being felt today. Experts agree that material prices will continue to increase over the next few years.

“The forecast for year-over-year price escalation in 2022 remains between 9% to 12%, said Michael Hardman, vice president of Turner & Townsend, a U.K.-based global real estate and infrastructure consultancy. At the same time, mounting inflation in the U.S. will further compound these difficulties,” writes Construction Drive.

However, 2022 added a new wrinkle – falling materials prices. The market has shown the prices of some common construction materials are headed in different directions. While costs continue to rise for cement and concrete, steel and lumber prices have fallen after previously skyrocketing during the pandemic.

Construction Drive continues, “Steel prices declined significantly from their high points in the third quarter, with national prices down approximately 12%, according to Gordian, a Greenville, South Carolina-based provider of data insights and construction pricing data. Weakening demand also indicates more downside in prices for steel.”

On our podcast, Craig Webb remarked that if 2021 and 2022 were about product availability, 2023 will be all about cost.

“I was just at a conference recently in which one of the major points was that 2021 and 2022 are years in which availability mattered the most. Do you have the product? Do you have a similar product? I need that product. I don't care what it costs, I'll buy it. If that was the way things were in 2021 and 2022, 2023 is going to be a return to concerns about price and cost. You're going to have a lot more customers asking how much does it cost?”

Building products distributors can combat up-and-down material costs by becoming more surgical in their approach to pricing. That means parachuting down prices as costs are declining or even exploring supply strategies to get rid of higher-cost inventory. There are opportunities to dial in on pricing by putting the right tools and processes in place.

Speed is also of utmost importance when making a market-driven price change. Manually aggregating cost data and updating spreadsheets to enact a price change simply takes too long. For global companies, there is the added step of performing currency conversion to calculate country-specific prices. However, there is a faster path to intelligent price management with Zilliant’s Quick Start package for Global and Country Price Lists. The packaged application streamlines global and country price list management with a standardized price waterfall and enables companies to be up and running with Zilliant Price Manager™ in as few as four weeks.

As supply chain and inventory challenges are also directly affected by market changes, leveraging revenue operations and intelligence software to maintain revenue growth is critical. Zilliant’s revenue operations and intelligence solutions, such as Sales IQ™ and Campaign Manager™, can identify product alternative opportunities or match inventory to customers most likely to purchase and deliver them to sales reps in the form of highly targeted customer actions.

Combat volatile material costs by passing through cost changes to system prices more efficiently with pricing software Using advanced and data-driven price optimization and what-if scenarios to calculate price elasticity at a granular level to better understand how far is too far when making price adjustments Leveraging price management software to bring in new cost data, adjust prices and immediately publish the new prices as fast as costs change Equipping sales reps with revenue intelligence and operations solutions that can automate product alternatives for excess or stockout inventory

Trend: Innovation and Technology Investments as the Key Differentiator

“Supply chain disruptions, raw-materials price volatility, and labor shortages have exposed cracks in companies’ operations … It’s perhaps no surprise, then, that executives in the industry are responding to the current dynamic with a renewed focus on innovation and digital transformation,” writes McKinsey & Company.

AI-powered commerce technologies, such as price optimization software, offer building and construction products distributors an invaluable opportunity to get ahead of competition. By leveraging price optimization software, leading distributors ensure sales reps have the most relevant and consistent prices in any selling circumstance.

One common industry challenge that plagues many distributors is generating relevant and consistent prices that sales reps will actually use. As cost changes increase in frequency, it’s critical to ensure sales teams are getting rational and relevant prices for each unique transaction. However, this becomes a major problem when companies use manual pricing systems and processes.

Manual pricing systems do not adequately consider the customer-business relationship. Some companies try to remedy this by giving sales reps the autonomy to set customer-specific prices, but reps simply don’t know the ideal price for every selling scenario. When prices are irrational, major problems can occur such as smaller customers receiving better prices than bigger customers or big orders getting discounted the same as small orders.

The ability to deliver prices to customers that reflect their valued relationship while also reducing margin-leaking customer-specific prices and deviations is critical for success in today’s business landscape. With price optimization software like Zilliant’s Price IQ®, distributors can ensure market-aligned and dynamic prices to maximize margin or revenue.

Price IQ® creates relevant and consistent prices by… 

Accounting for all factors that influence price Optimizing system prices to deliver market-aligned price guidance Providing override guidance with guardrails to reduce over-discounting when a deviation is necessary Seamlessly delivering price guidance into any ERP, CRM, CPQ or eCommerce application in real-time and dynamically as conditions change Visualizing KPIs and pricing performance with flexible, customizable, and business user-friendly analytics Generating prices that are easily explainable and defensible, ensuring sellers use them and customers accept them

“Building-materials players that do not adapt will be left behind, but those who embrace the future through innovation will succeed in turning the experiences of the past three years into a new growth trajectory,” writes McKinsey & Company.