RSS

How to Cope with Volatile Raw Materials

 By: Melissa Klaw
 Marketing Assistant

For Developers and Owners, the cost of raw materials can be as unpredictable as a heart attack. Similar to a heart attack; when material costs are on the rise they affect the vitality of your projects, which causes distress and pain (primarily to your wallet). The fluctuations come without warning and can be threatening to Owners and Developers. According to Ken Simonsin, chief economist for the Associated General Contractors of America, the cost of construction materials has increased by 41 percent since late 2003.  Because natural disasters, changes in demand, and transportation costs will inevitably alter throughout the years, the raw materials market will continue to be erratic. How owners and developers respond to these changes can mean life or death for their projects.

The instability of materials such as copper, steel, cement, and petroleum-based products can have severe negative impacts in the construction industry. The inconsistency of just one material can affect multiple resources. For example, if the price for petroleum increases, consequently the price of asphalt, shingles, PVC piping, plastic, and steel production will also increase. As an owner or developer, you must be able to properly manage your risk and budget accordingly. Unprepared companies that fall victim to this issue can jeopardize the success of their portfolio. A.T. Kearney, a management consultancy, stated that “for companies with significant raw material exposure…mastering raw material volatility has become essential to short-term growth and long-term competitive advantage.” So how do you become a shark in a school of fish?

 image002image006

In a world of uncertainties, how can you effectively limit your exposure? Partnering with the right General Contractor can be the solution for most Owners and Developers. How do you know which contractor is the right General Contractor? Determine the traits the company portrays; can they mitigate threat, limit your vulnerability, and improve your assets? Are they prepared, aware, and flexible? Affiliating your company with a general contractor with these three qualities can drastically improve the way owners and developers cope with the volatility of raw materials in the construction industry. Let’s explore why:

Preparedness. Being prepared to handle an explosive market is the first step to being successful. In order to mitigate unexpected cost increases, Owners and Developers should hire a general contractor who tracks current material prices and project trends in the market. When partnering with Taylor Commercial, Inc., you will find the purchasing process to be effortless. Taylor will purchase raw materials while the market is low, ensuring no surprise change orders due to volatility. Additionally, during the proposal procedure, we will assist with installation methods and product selections that will reduce exposure to inconstant materials.

image008

Awareness. Being aware of market fluctuations and planning accordingly is vital to the long-term success of the project. In order to do so, Owners and Developers should enter into a suitable contract. Many contracts have a disclaimer on them that is referred to as a price escalation clause. This clause allows contractors to increase the price that was originally agreed upon. Construction contracts with price escalation clauses allow unexpected change orders and increases in project costs. Fortunately, Taylor Commercial, Inc. does not include these clauses in our contracts; allowing our customers to have confidence in our pricing without apprehension of lurking material price increases.

Flexible. Because the market is always changing, hiring a contractor that is able to adapt is essential to overcoming obstacles. In fact, by doing so, you can completely erase the risk of an unstable market. Taylor image009Commercial, Inc. is always willing to make adjustments to conform to the current market. Taylor adheres to our original contract value regardless of a poor market. Even through a long-term application and sales cycle, Taylor honors the original proposal price. While other companies may only honor a proposal for 30 days, Taylor has honored them for up to a year. When partnering with a flexible General Contractor, such as Taylor Commercial, Inc., Owners and Developers can eliminate any risk presented by a volatile raw materials market.

 

Great Article for the hiring process at your company!

Are You Topgrading?
By Ross Haynes, Vice President / COO

At Taylor Commercial, we have placed an extremely high value on personal development for our employees. Each month, we read books as a company and discuss the books at our monthly staff meetings. To this point, no book has impacted our business in the way that Topgrading (by Bradford D. Smart, Ph.D.) has. Topgrading is an approach for hiring, developing, promoting and retaining A players in your organization. A players are the “best of class” which make up the top 10 percent of talent available at all salary levels. Most companies today should expect at least a 75% failure rate in hiring and promotions, meaning that only 1 out of 4 individuals hired or promoted through the standard methods turns out to be an A player. The reason for this is that the average company uses single 30-minute interviews to make hiring decisions and does not invest the time to review more candidates and truly find the best candidate available. They also have poor performance management systems (if any at all) and place no focus on developing their employees. These companies also fail to timely redeploy poor performers (B and C players).

Mature companies who embrace and implement Topgrading methodologies have experienced upwards of a 90% success rate in hiring and promoting A players. These companies successfully employ the following Topgrading techniques described in the book:

• Implement Topgrading from the CEO down; first Topgrade the Executive Team and teach them to Topgrade their teams.

• Use Topgrading Interviews to identify the A, potential A, B and C players.

• Use Topgrading Interviews when hiring externally or promoting people.

• Provide employees with the necessary coaching and development to become and remain A players.

• Redeploy chronic C and B players into positions within the company where they can be A players or release them to the industry.

The Executive Team at Taylor Commercial has begun to fully incorporate Topgrading into our culture, and we are already seeing tremendous results. As the economy has tightened, we have taken a close look at our business to ensure we are investing in the right people, processes and tools to best serve our customers, and Topgrading will be a major part of our success going forward. We are excited to share this information and recommend this book and program to our customers and partners. Studies have shown that the average mis-hire may cost companies up to $1.5 million…are you Topgrading?

 
Leave a comment

Posted by on July 28, 2011 in Uncategorized