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What a fascinating time to watch human nature in the face of unprecedented supply disruptions! Every which way we turn, it seems we are running out of this or lead times are long on that.  It’s hard to get reservations at favorite restaurants, flights are canceled, products on back-order and stores crowded.

Supply and Demand  Normally the economic market forces of supply and demand moderate these dramatic swings – higher prices slow demand and spur investment in supply, so they balance out again.  But with our country flush with cash (from businesses that stayed open or government checks), price seems to hardly affect demand at all – most folks just kept buying!  However, business owners remain wary of investing in large capital projects that would eventually boost supply – thinking “surely this government stimulated boom time can’t last.”

Introducing Doubt, Shattering Expectations With lean manufacturing and just-in-time inventories dominating business management for years, our society had become spoiled with the expectation of getting virtually anything right when we want it.  Next day delivery even became too slow for us, so Amazon vans now ubiquitously show up on our block within hours. But what if our entire supply chain is interrupted or breaks down? Or you think it might be? We’ve now seen this firsthand. How did we run out of toilet paper?  Why is there no ammunition on the shelves at Academy?

Insecurity Drives Hoarding.   In inventory management, “safety stock” is a term describing the amount of product needed to hold you over between the time you re-order and when that order actually arrives.  In our lumber world, what was normally about one to two weeks stretched to five weeks and more (with no promises from suppliers other than “it is what it is”).  To take care of our customers and not run out of stock, of course we had to order more.

Insecurity about our ability to get wood fueled our desire (and willingness to pay crazy prices) to buy as much as we could get our hands on.  All of a sudden, our manufacturers were putting all of us on allocation, selling us less than we wanted, and basing our allotment on past purchases with them.  We, in turn, had to say “No” to new prospects (buyers literally coming out of the woodwork – hungry for wood wherever they could find it, at whatever price), in order to have supplies on hand for our loyal, long-term customers. And that, in a nutshell, is how the lumber and panels markets went nuts!

Future Demand Pulled into the Present So how does this thing unravel?  If you’re still using up the extra toilet paper and paper towels you stashed in the garage during the pandemic, you know some of the answer.  As soon as the panic period ends, when we feel reasonably assured that we can buy what we need in a predictable time frame, the air goes out of the balloon – whoosh!  Once we feel safer and a little more secure, our behavior changes.  All of a sudden we can turn to our “safety stock”, and demand toward the manufacturers drops like a rock (along with prices).  Supply can then catch back up.  Ah, the economic market forces finally coming through.

As you can see from the market update notes above, we’re not quite done with this one yet (pockets of problems), but the trends are much better.  I wish I could confidently say that all will soon get back to “normal”, but I’m afraid that human nature is with us to stay.

Build to Last,

Dave Reichert
President
Davis-Hawn Lumber
Davis-Hawn Architectural Millworks
Lynn Floyd Architectural Millwork