Predicting the Next Economic Downturn

What if your ready-mix sales fell by 75% in one quarter and didn’t recover? It sounds extreme, but some U.S. concrete producers lived this nightmare less than 10 years ago. When business is good in concrete, it can be easy to forget how really bad it can get.

Although we are now enjoying one of the longest periods of economic expansion in U.S. history, how much longer can it go on? Only a fool would put off planning for the next downturn.

The question is, what can we do now that we wish we’d done before the last recession? As any good gardener knows, you need a variety of plants with different growing cycles to maintain a lush garden year-round. Concrete producers should take a similar approach to distributing work across various construction segments.

So how do you know if you’re achieving the right balance? Most producers know exactly how much they sell of each product, and how their plants and fleets perform by region. They don’t necessarily track revenue by business line; for example, how many cubic yards of concrete or tons of aggregate are used in residential versus commercial projects.

Titan America is pursuing this line of data through an enterprise resource planning (ERP) system. By tracking each order of concrete, cement, or aggregate by work type and zip code, the producer can develop a heat map of the volume and type of construction activity in each region.

Titan also plans to implement a specialized customer relationship management (CRM) toolset that will complement the ERP data. By tracking the “quote-to-cash” process, the producer will see specific opportunities in the pipeline as well as areas where projects may be drying up. A real-time, mobile component will capture and convey this information clearly, so sales teams can pursue different types of work or adjust prices accordingly. Executives will be able to make more informed decisions and react quickly.

“By comparing results over past quarters, we can see how customers in different segments have performed,” says Tomas Carmelo, director of business development for Titan Florida. “If the numbers start to drop it can be an early warning sign.”

Ask Questions

If the executive team sees a certain segment decline three months in a row, it investigates the reasons causing the change. Why are customers not buying in this area? Are prices down? What does the project backlog look like? Why is market share falling in one area and gaining in another?

“Our internal data analysis gives an accurate picture of what’s happening with the business right now, and in the immediate future,” says Carmelo. “To see the bigger picture of where we’re heading, we use a suite of tools.”

Titan relies on construction reports and economic forecasts from several sources, including PCA, Dodge Data & Analytics, and the University of Central Florida. AIA’s Architectural Billings Index (ABI) provides a nine- to 12-month outlook on new construction. Another good resource is Metrostudy, which is owned by Hanley Wood, publisher of The Concrete Producer.

Carmelo also conducts what he calls “boots-on-the-ground analysis,” or simply talking with customers. If contractors are struggling to find enough workers, it’s a good sign. If project bidding is extremely competitive, not so good.

The next recession is inevitable. How will concrete producers know in advance? How will they respond? “Any responsible company looks at the last recession as a bellwether,” says Carmelo. “The next time we see signs of a downturn, we’ll take bold action earlier to limit the damage it brings.” The producer’s ERP and mobile tools are now a strong component of Titan’s defense.

Sidebar: Are your markets hot or not?

No construction segment is recession-proof, but concrete producers can use existing data to analyze how their backlog aligns with emerging construction trends. When the forecast shifts, they can strategically pursue specific projects to soften the impact of an economic downturn.