Consolidation in 2021?

The UK’s relationship with Europe may now be decided but did it simply serve as a distraction from far more fundamental vulnerabilities in the window and door supply chain? Aluplast’s director of sales and marketing Ian Cocken discusses.

You can draw a line down the middle: companies manufacturing and extruding in the UK are publicly promoting the virtues of ‘buying British’ in the industry media; while those importing into it, are moving to reassure their customers that new controls at the border won’t impact their ability to maintain supply.

Aluplast sits in the second of these two camps. We have increased our stockholding to manage our way through what will be a transition period. It’s worth pointing out that the UK’s supply chains are so interconnected that even those on the buy British bandwagon can probably trace part of their supply back to the continent.

Brexit, however, has been a distraction from the real issues impacting on the window and door supply chain, and these were always going to remain the same, inside or outside of the EU.

The window and door sector is founded on fragmented and low margin supply chains, which means low net margins, poor cashflow and under-investment. Brexit hasn’t made a difference to the fundamental weaknesses that exist within our sector, and which are far more likely to shape it going forward.

You need look no further than the supply chain challenges encountered in Q3 and Q4 of 2020, when disruption to supply collided with exponential growth in demand, stretching supply chains inside and outside of the UK.

The fragility of the supply chain – glass, hardware, and systems – was exposed. It failed to keep up. That was the product of Covid, the decision of many UK manufacturers to mothball production in March and April, and their ability to get back online.

A lot of UK systems companies struggled, either because their supply chains were disrupted or because more fundamental weaknesses, and under-investment, was exposed.

This remains a gaping hole in the window and door supply chain. Venture capital is still massively important to a number of UK systems companies, and the track record of that speaks for itself.

Conversely, those companies that performed best during the pandemic were family owned, including Aluplast. The money that Aluplast makes globally goes back into innovation and product development, not the pockets of shareholders or VCs. I don’t think you can over-emphasise the importance of that.

If you look at the companies that continued to deliver, at a systems level, in fabrication, they were family or privately owned business. There’s an agility there, and a focus on reinvestment and innovation.

For Aluplast, this has included investment in a new 13-hectare site with new extrusion halls and foiling capacity. Completed last year it included the installation of 23 new foiling lines, in addition to those already running, doubling our foiling capacity at the start of 2020.

We weren’t perfect; we did encounter some challenges. However, for the main we were able to protect and maintain supply, including foils, which proved a crunch-point for many systems companies and fabricators in 2020.

Despite the challenges in supply seen last year, the industry remains in the longer term, at over-capacity, something which in a mature market makes continuing consolidation likely.

There are fabricators who are going to sit down this month and next and review their profitability and realise that while they have been overwhelmed with business, they haven’t made margin.

There are also systems companies whose models are built on minimum volumes and those volumes won’t be there because they have lost customers.

That is going to lead to further change as the market readjusts to more normalised levels of demand as Covid restrictions ease and consumers find things other than home improvements to spend their money on.

This makes the integrity of their supply chain key. There are a lot of fabricators who have sat out disrupted supply through gritted teeth. We get it, switching system is also disruptive and probably something that they would rather not do. There are also a lot of very loyal people out there which is great.

What I would say to them now is what if it happened again? Would they or their customers be willing to accept the levels of service they saw from their suppliers in 2020, again?

If the answer is ‘no’, at the very least it’s sensible to explore your options.