Supply Chain Challenges Webinar

[Shane Clarke] Thanks for joining folks, I'm just going to let the room populate and start very shortly. All right. Tēnā koutou. Good morning, everybody. Welcome to our Nuralite Supply Chain webinar. It's a little bit different, we'll be a little bit more informal and just basically having a conversation around about some issues that we're facing with supply chain and hopefully some of the solutions that we can provide to you. 2nd of December 2021, so getting very close to the end of the year, only a few more sleeps till Christmas. I'm joined here today by the Managing Director, John Simmons, who has a real head for facts and figures, that's why we've got him along. He pays the bills ultimately, I think that's why he remembers them all. Welcome John. [John Simmons] Thanks very much, let's crack into it. Yeah, sure. [Shane Clarke] All right, so for those of you who don't know, most of you who are here today do, but Nuralite import waterproofing materials and have done for the last 55 years. So a little bit of history here that over the last decade, obviously things have flowed like clockwork, you know, importing things has been a relatively simple and economical procedure. We've all done it for the last 10 years and it's been pretty simple really. Delivery times have been consistent and then we've had a bit of an upset recently. There's a multitude of things that have upset that. So I guess what we're sort of seeing now, and it's not unique to Nuralite, it's, I guess we're seeing it right throughout the whole industry, aren't we, throughout the whole country? [John Simmons] Well, throughout the world. [Shane Clarke] So what we're seeing now, and you are probably seeing as well, is that costs are fluctuating, obviously going up and hopefully down as well. Delivery times are random, we're going to show you some graphs later on, show you sort of what our typical lead times used to be and what we're currently facing and basically find a few things that we don't even know. So we'll get into that now. We need to pick up on that one. [John Simmons] Yeah, I mean at the end of this webinar, hopefully the reason why we're giving this is so that our customers can appreciate some of the challenges that we're all facing, because we're in it together, and help us get a good result. Because ultimately we want to have product ready for our customers to put on which and by working together as a way we can overcome the challenges that we're seeing. And it's not a transitory thing, this is actually a fundamental shift. Like we've had a decade of predictable, and even the last year it's been pretty predictable, but in the last six months the wheels have really fallen off and yeah we'll take you through it. [Shane Clarke] Yeah, well so the next slide is we're just going to give you a bit of a walk around the Nuralite and show you facilities and what we do. They say you shouldn't go and visit the insides of a sausage factory, but we're going to risk it and show you what we get up to. So we're going to play a video, hopefully it's not too laggy at your end, thanks to the internet. So you'll get the idea, we'll pause the video as we go along just to point out a few things. So I'm going to flick into that, thanks Jade. All right, so this is our, I guess the mothership facility up here in Auckland at Mount Wellington, 60 Leon Leicester Ave. We have about a 2000 square metre landing bay there, so it's registered. Yeah, thanks. Yeah, so it's about 2000 square metre landing bay there, it's a registered transitional facility, so we're directly importing the goods from ship to our facility. It saves us a few days doesn't it? [John Simmons] Yep, waiting for other people to have to trans-ship it and things like that. [Shane Clarke] So as well as this facility, we also have about a 1000 square metre warehouse in Christchurch as well, and we have 3PL facilities out of Wellington. [John Simmons] Just another comment, we obviously filmed this in the COVID restrictions and so on the left-hand side we've got bays so that people can pick up their stuff. So they're ordering all their products online and then they come in and it's totally contactless, we put their product in a certain bay and they come and pick it up. And you can actually see on the right-hand side we had about four containers, we can actually unload about six containers at one time. And yeah, that's when the facility is really, really humming. [Shane Clarke] Yeah, yeah, that was really humming that week, that's for sure. Nice to see those containers rolling in, so I'm going to carry on from here Jack. So a little bit of a look into our high stud warehouse, so recently installed some pallet racking. So this particular warehouse is around about 3000 square metres, 11 metre high stud, recently put in some pallet racking on about a third of the floor area. So where we used to be able to store about 270 pallets on the floor, we can now store about 990 in the same floor space. So that was a big step for us, very, very, very new. We learned a lot in this process, didn't we? [John Simmons] Yeah, I mean back in February of this year we obviously had, we could see issues occurring. We had products stuck in Tauranga for about a month or two and ran out of Neurojax as a result. And that's when we made a call that we really needed to ramp up our stockholding so we couldn't rely on the delivery chain to smoothly get it. So as a consequence, we've invested in this racking and really ramped up the amount of stockholding. So you can see there, well getting towards 900 pallets of product and when we zoom around the rest of the warehouse, we'll see the other things. [Shane Clarke] Yeah, so that gives us sort of the remainder of the floor area for now to, yeah, sorry, gives us the remainder of the floor area to stock things that are bulk like our insulation board and things like that. Here's just a quick example of the, if you can see the red wrapping around the pallets there, so we'll probably touch on later on, but these are actually all pre-sold. What this enables the client to do is to confirm the price and obviously confirm the stock as well. And all these things are relatively new to us. The last 10 years we haven't had to do it, so it just arrives on the day when they say it does. We don't have that luxury anymore, so having to improvise and adapt to meet the customer's needs. Yeah, just sort of a flow through the warehouse there. Oh gosh, I mean who knew that you needed building consent for shelving? [John Simmons] Yeah, so there you can actually see our PIR insulation board. We stack that three pallets high in the warehouse, which is one of the great benefits of having the high stud. We're actually quite light on PIR because November there was a big rush on it, so that's relatively modest stock holding of it. We normally would have all of those rows filled with insulation board. [Shane Clarke] Yeah, you can also see our other insulation products, see just to the right, the rockfall bales. There's all sorts of everything in there. So this is, yeah again, just more shots of the warehouse and our mate Quintn here driving around in his electric forklift picking orders. This is an example here of, this is one pallet, is that right? One pallet of PIR board being loaded by Rod Southwood. So it's a very careful delivery, whoever received that part. [John Simmons] Who knew he had a forklift licence, but he does. He does, he does, and a high viz. But yeah, that actually is quite a good shot of a pallet of material. So just so you know, in a normal 40 foot container, we would fit 10 of those pallets. And if we were looking at 80 mil board, that would actually equate to about 300 sheets of, in a 40 foot container. So 300 sheets in a box, in a 40 foot box. Now, another satisfied customer. [Shane Clarke] Yeah, yeah, satisfied forklift driver too, look at him, he's pretty chuffed. All right, so that was just a bit of a brief look around. Hopefully the video wasn't too laggy at your end. Hopefully when we get this whole red light, green light thing sorted out, everyone understands it. And you know, welcome to show you around when we get to that point. Just look onto the next slide. Right, so as I touched on earlier, we mentioned that obviously previously, the last decade, things have been predictable, just a bit in the yellow here. And then obviously, we're now in that red zone there. So I think John has sort of explained a little bit more what's happening there and wanted to call out some of the numbers there. Sure. [John Simmons] Basically, that's looking at our two main suppliers. And what we're looking at is the number of days between when we place the order and when the product is received into our warehouse. And so on the left hand side, the access blocks the number of days. And in the yellow zone, you can see that it was somewhere between 70 and 90 days. James got the cursor at 90 there. So it was taking between two and three months for stuff to arrive. And those suppliers are coming from Europe. Yeah, and you see we can product arrive basically every month and it was really quite predictable. Come forward to February is when we started hearing about issues in Auckland and Tauranga. And you can see actually, the blue line is when the stuff got really stuck in Tauranga, really shot out. And of course, if you're moving, if you're carrying about, say, two months worth of product, and it takes two months longer for the stuff to arrive, you don't have any product. So that's what that chart is showing us. When it's in the red zone, it's really starting to challenge your whole inventory system. And you can see the extreme, that last line, we've gone from what about 120 days out to 175 days. So you're talking about instead of taking two to three months, you're taking four to six months for stuff to arrive, which is literally outside everyone's control. Yeah, there's no one you can call. There's no one you can call in Europe and there's no one you can call in New Zealand. And we've called them all. Well, you can try, but yeah, you'll get no response. But so, and to highlight the stuff that's just arrived on the extreme right, at the very high top, that product got unloaded in Singapore. Tranship, which is normally a couple of day thing, will come from Europe and get transhipped in Singapore. And it sat in Singapore for four months. I don't know how there's that much space in Singapore, because there's thousands of containers stuck in Singapore. But what I understand is, from comments I've heard, is that we've got issues with ships coming from Singapore to New Zealand and then just been taken off the route. [Shane Clarke] It's not a particularly attractive route, is it, from a shipping perspective, to ship from Singapore to New Zealand, because the backload's typically empty. [John Simmons] Yeah, so they have their, we would be like, hopefully there's no Invercargill listeners, but we would be like the Invercargill. And so you fly the main route and then you have to put on a special flight down to our friends at Invercargill. Yes, lovely work down there, by the way. Great. Yeah, so yeah, that was just explaining some of the, showing you some of our delays, which John mentioned that outside our control here. [Shane Clarke] So combined, I mean, that was just the delays we're talking about. So on top of these delays, we've incurred some incredible costs, which is just, as you can see, go off the chart. So correct me if I'm wrong, John, but we're looking at a world, a global index of shipping prices. [John Simmons] That's right. Yeah, I mean, anyone can Google it, and that's what I did. And I've never done it before, because there's been no need to, because it was always pretty much the same price for a decade. Then COVID hit, and we started to see a rise, but not too bad. At the beginning of this year, we saw a bit of a rise. This was that first plateau there. That's in about April. We managed to just absorb that with, yeah, with just a kind of bite the bullet. There has been some funny kind of situations happening with that. We bring in product from Malaysia, and it was cheaper to put those insulation products in a refrigerator container rather than a normal container. So we're refrigerating the product that we're bringing in rather than, I don't think they turned it on, but as I say, it was literally 30% cheaper to put product in a refrigerator container than a normal container. So that's how messed up everything is. And then in the last couple months, we've seen a really dramatic spike. For me, it's a bit like a tsunami. We've seen a surge approach, and now we're being really smacked by the wave. It could be like a tsunami, if I drag my analogy, it could be that the wave's actually going to go out, and we're going to recede and come back to a more normal, or it could be that there's another tsunami coming. To put this in context, so it's not just a straight chart, in New Zealand dollars, actually in US dollars, in New Zealand dollars bringing stuff from Europe to New Zealand is adding about 18,000 Kiwi dollars to a 40-foot container. [Shane Clarke] And what did it used to cost? [John Simmons] Well, about 5,000. So it's gone to about 23,000 Kiwi dollars to bring a 40-foot container to New Zealand. Now, that's not too bad if you're bringing in product that comes to, say, it's $100,000 worth of product. If you're shipping iPhones or something, it wouldn't be a big deal. But if you're shipping a lightweight, high-volume product, like insulation, or bubble wrap, or anything like that, it's going to have a huge impact. And so now we've seen that the shipping cost is actually as much, or if not more, than the product cost on some lines. For example, like a drainer's board, again, it's lightweight, taking up volume, but relatively cheap. So that's having a huge impact. To give you a drill down to the numbers, the 18 grand movement, we said before you get 300 sheets in a 40-foot container of 80-mil PIR. It's not rocket science to take 18 grand. You don't have to be Rachel Reilly to work out that it's $60 a board. 18 grand, I'm not Rachel Reilly. Yeah, maybe we can. [Shane Clarke] Yeah, so the cost of the actual product itself hasn't gone up that much. Obviously, the cost of the shipping is what the real effect is on that product. [John Simmons] And unfortunately, all of our suppliers' costs have gone up, not by anywhere near that much, but because they're shipping in raw materials as well. And so their costs have all gone up. And so it is literally a domino's effect. So everyone's putting their prices up, and the shipping's going up, and so everyone's putting their prices up again. And there's lots of raw materials that then, I guess that's the other thing we didn't touch on the last slide, we've had products where they just don't have the raw materials. It just hasn't arrived for whatever reason. Again, it's unheard of. And so we've got some product lines where we just can't source it. It's not available. So fortunately, that's not in our core lines, getting into the niche areas, but it does show you the struggle that everyone's having. [Shane Clarke] And it's obviously amplified with more of an effect down here in New Zealand, because it's sort of the last stop before the end of the world. All right, so what have we done? As you can sort of see through the video there of the warehouse, we've really wrapped up our stockholding. In order to do that, we've had to instal pallet wrecking. We've got, I mean, the place in Christchurch is relatively new, the 3PL in Wellington. We just really have to increase our stockholding. Like I say, they invested in some pallet wrecking. John, do you want to explain this forward ordering we're doing to suppliers? [John Simmons] Sure. So ordinarily, we used to place an order. Basically, we'd place it on a, once a week, we'd have a look at our stock levels and we'd place an order and they would just go and then they would book the ship. What we're now doing is we're actually looking out over the next six months and placing orders so that our suppliers can go and book a slot on the ship. And they can also put our demand into their planning so that they actually have product available when we need it. This still doesn't guarantee us that it's not guaranteed. Because it turns out that shipping companies can literally make it up on the fly. So we've had issues where stuff has been booked and, say, from out of Antwerp and they just pull the ship and then the next ship next week, there's now another thousand euros to book your container and they will just repeat, repeat, repeat. So it's about trying to do everything you can do, but acknowledging that sometimes that's going to be defeated. [Shane Clarke] Another thing we're trying to do, of course, is focus on project forecasting. So obviously myself and the Nuralite team, we're trying to talk to our applicators, trying to talk to our builders, just trying to get some level of forecasting. I think historically, we've always had stock and it's always been relatively plain sailing and it hasn't been such an issue to highlight, but forecasting projects is hugely beneficial for us and obviously we have that payback and it'll be beneficial for yourselves, for builders and I guess the clients at the end of the day as well. Your cyclical pricing, John, do you want to explain that one? [John Simmons] Yeah, OK. What we've traditionally done in the past is set a price normally around April or something like that. I go, well, you know, we've had these cost pressures here or there and we're just at price and then for the next year, we've just kind of absorbed any swings and roundabouts, provided that the exchange rate didn't move too much. And that's the other factor which we haven't discussed here, but fortunately, exchange rates have been fairly steady throughout the whole COVID thing. So that's been a saving grace. But what we have to do now is look at our pricing. Every month and I'm hopeful that the shipping cost will come down and then we can actually adjust the price down because it's painful for our customers, it's painful for us. I mean, we really are not happy about it. So we're going to be looking at it on a monthly basis and tweaking the pricing very regularly. And so people have to bear that into their planning. That comes back to the forecasting as well. If we can forecast, we can probably be able to try and get the right price if that helps. One other change that we've made, actually we didn't put on the slide, is we used to store stuff in Dunedin. We used to have a 3PL site in Dunedin. We actually had to drop that site because the shipping companies just added another $10,000 on a container to go to Dunedin over sending it to Christchurch. Again, I presume just because they just didn't want to sell to Dunedin. So they just said, well, it's going to cost you to do it, which made it wholly uneconomical. Absolutely, just totally cost prohibitive. So yeah, that's why we dropped it. I didn't mention the 3PL in Dunedin because we dropped it. And everything's going into Lyttelton, into Christchurch via Lyttelton. So hopefully we can go back when things get better, but it obviously puts a price pressure on everyone. [Shane Clarke] So those are a few things that we've done to try and help smooth the bumps and whatnot. Here's just a couple of suggestions and a couple of things that we think that our customers can do to help respond. Like I said, historically, we've always had stock and the price has always been the price and it's all been plain sailing. I think it would be safe to assume that the product will not always be available and will not always be at exactly that same price. I guess it comes down to quotes and things like that. We've seen examples where quotes have had ridiculous times on them. You know, someone submitting a tender or a quote with a 12-month valid period on it, which is, you're really creating yourself an issue there if you're doing that sort of thing. What sort of precautions are we talking about in that second one there, Tom? [John Simmons] Well, yeah, the first thing is you can't just assume that you can keep behaving the way we did and everything will go all right. And just like we made changes to our operations in February to mitigate the impacts of the disruption, we're suggesting our customers do the same thing. So the precautions are the four listed below there. [Shane Clarke] Yep, I don't know if you recall back in that video, we had those pallets that were wrapped up and read, the range payment from the builder, the gain locks and the price locks and that stock availability. [John Simmons] We're seeing a bit more of it than we did before, getting quotes from us. That gives you some confidence. We can give you a price window. It's not going to be a huge price window, but maybe it's 60 to 90 days so that, for example, our applicators, if they come and get a quote, they then know they can go to the builders that this is the price. It doesn't mean that it's going to be available. [Shane Clarke] No. [John Simmons] Okay, so that's when we get to the next one, which is communicating project timelines so that we can put it into our planning. And then we get into the bigger ones, which is if you have got a serious sized project, and we're talking $100,000 plus, if I was the customer, I would be wanting to indent those products. And that means I know what prices, because that's part of the indent process. And I know that it's going to be available because they've gone and ordered it. Now, it may take 90 days, it may take 120 or 150, but at least I know that it's going to be there. And even if I just do that for the bulk of the job, I don't necessarily need to do it for all the little side things, but at least I know that there's going to be a membrane delay. [Shane Clarke] Particularly if we're talking about the weathering work of the building, it's probably an important piece to get on top first. [John Simmons] If there are delays to things internally, we will know that that's not going to be detrimental to the build. And then, as you mentioned, the last one there is arranging off-site payments. A lot of contractors have been reluctant about that in the past, but now we're seeing that reluctance has been outweighed by the risks to the project. So, yeah, for us it's a really simple process. You can, anyone can come and inspect the products, they know it's theirs. [Shane Clarke] Yeah, yeah, that's right. We've actually, funnily enough, got a main contractor coming in today to look around. [John Simmons] Maybe we'll get him some muffins. Now, questions. We've got three minutes because we've talked too much. [Shane Clarke] Well, yeah, we have. All right. So, anyway, that was us talking about our supply chain issues, some suggestions on what we think you guys can do, and obviously what we're doing to try and adapt to this current situation. I've got just a couple of questions here that are coming through on the Q&A. Where do you import your products from? [John Simmons] Okay, pretty well everywhere. The main stuff, the installation board is coming from England and Holland. Membranes coming from Belgium. We're getting other product from America, quite a few different sites in America, some Central America, and stuff not Central America, within the middle, mid-America, not Central America, but from the middle of America, and that's actually been really problematic because you just don't see any trucking. The other side, we get stuff from Asia, from Malaysia, Italy. So, we've got it across the whole world, and everywhere has had problems, and there doesn't seem to be a way to avoid it. You can't just go, oh, we'll skip out Singapore because it's global, endemic. [Shane Clarke] Absolutely global. Another quick question here. Why don't we source New Zealand-made products? [John Simmons] Yeah, I mean, that's a good question. For me, this is showing some challenges, but actually, if we were, for example, trying to manufacture TPO membrane in New Zealand, A, you'd have to build a massive factory, and when you go to these factories, they're literally the size of a rugby field, but bigger than a rugby field. They are. I mean, when I went to America, it was two kilometres long and sort of half a kilometre wide. These are not small facilities at all, you know. Obviously, the raw materials would all be imported, so the reinforcing would be imported, plus all the chemicals to make the product would be imported. So, we're not solving the supply chain unless you're using a product, making it out of wool or something. Yeah, something that is quality, and the issue around quality is you get really good when you make something and you just repeat it every day, 24 by 7. So, the plants I go to, like that anything board in the background in that photo, the plant is just pumping it out, and I've seen them when they start the lineup, and they literally throw it all away. [Shane Clarke] Yeah, the first batches are a bit overdoing, like your first batch of pancakes. [John Simmons] So, the quality is not there if you are stopping and starting the line, and you're not getting to fine-tune it. So, in New Zealand, I'd say their TPO demand in New Zealand would be about a day's production. [Shane Clarke] Yeah, it was. I mean, we went to a factory over in the States where they had this state-of-the-art machine, and we've been telling that there's a cost of machinery to make this product as well. The machine's been running for eight hours continuously, and in that time, it's actually enough membrane to put in the New Zealand market for a whole year. So, you know, just that scale of economy that we unfortunately don't have down here. So, that's why we don't import New Zealand-made products. [John Simmons] And again, we're actually selling systems now which actually have a number of components to it. So, it's like, well, to actually try to manufacture a warm roof in New Zealand is just mind-bogglingly complex. Yeah, it's just not possible. Eight to nine different individual components, you know. It'd be difficult to manufacture all those. Right, any more questions? [Shane Clarke] Nope, that's it from them. So, yep, that was Nuralite today talking about our supply chain issues, what we're trying to do to stem the flow, and just some suggestions on what you guys can do to help yourselves, help us. I mean, it's a total symbiotic relationship between us, the builders, the applicators, the client, end of the day. If you've got any other suggestions, we're really keen to hear them, so pop them through. But yeah, no, that's it from us. We'll let you get back to your day. Thanks very much for tuning in, and we'll see you next time.