While all kitchen and bath sectors face similar supply chain disruption, runaway costs, and labor challenges, perhaps more than any other, manufacturing faces a unique set of issues that require creative solutions.
According to feedback from the Q1 NKBA /John Burns Kitchen & Bath Market Index (KBMI) report, lead times have become a significantly more significant problem in just the past quarter. In the fourth quarter of 2021, 23% of manufacturers reported more than ten weeks of lead times. That number has ballooned this past quarter to 31%, with half experiencing delays of 4-6 months. Although severe capacity restraints had softened from the past two quarters, when 80% of respondents reported facing that challenge, three in four manufacturers are still dealing with serious capacity issues.
To address these challenges, manufacturers are investing in new equipment to reduce lead times and increase productivity. At the same time, they are taking a hard look at current product lines and shutting down those that aren’t performing at maximum efficiency. In fact, 42% discontinued product lines in Q1, an increase over the 36% who did so in the previous quarter. Half have indicated those shutdowns are permanent. Instead, they are focusing on top-selling SKUs that help them maintain margins. Respondents noted:
- “We are discontinuing lower volume lines for added capacity for our most popular products.”
- “We’re putting the most important SKUs at the top of the list.”
- “New machinery was purchased, and we are also carrying more stock.”
- “We extended the production schedule to seven days a week and added a night shift to try and make a dent in our backlogs.”
Among the positives, over three times as many manufacturers see higher price points from customers as lower. Availability has become a top competitive purchasing decision. In response, many have shifted capacity towards high-margin/high-volume products.
As for the challenges manufacturers share with other segments, skilled labor shortages are near the top. Three-quarters of those in manufacturing surveyed indicated they are raising labor rates, at an average of 15%. Although steps are being taken to increase automation, it hasn’t impacted the need for workers, especially as backlogs increase. Others are increasing investments across all areas, hiring more staff, increasing warehouse space, and making capital investments in new equipment and new lines. While the need to address brisk business is not a bad problem, manufacturers must constantly be on their toes to take advantage of the good times by supporting appropriate supply levels for their clients without sacrificing margins in the process.
Robert Isler is a Market Research Analyst at National Kitchen & Bath Association. He develops macroeconomic and industry survey analyses for nearly 14,000 member companies comprised of manufacturers, designers, showroom owners, and specialists across North America. He also disseminates reports on current and anticipated trends within the $158 billion kitchen and bath industry.