You should be out of business by now. Or, at best, serving merely as a just-in-time local delivery service for lumber and building materials ordered online by former pro customers now dealing directly with manufacturers.
But it didn't turn out that way, did it? Most Internet-based commerce outlets that promised to cut costs out of a sloppy, cumbersome, and archaic LBM supply chain are now on the dot-com scrap heap, in bankruptcy court, or retooled for other industries while locally based, pro-oriented dealers thrive in remarkably steady market conditions. “We used to joke that builders and dealers were happy with faxes and cell phones,” says John Crockett, president of ChanneLinx, a Greenville, S.C.–based supply chain e-commerce provider that recently emerged from bankruptcy after trying its luck in the LBM realm. “The [dealer-builder] model wasn't broken, so there was no need to fix it.”
To most dealers, even those who understood the concept of an electronic highway that bypassed their station, the way things played out was no surprise. Not that the Internet or electronic data interchange (EDI) systems aren't becoming critical business tools for dealers, just not in the way it was presented at the turn of the century. “We thought the models made sense, but it wasn't something we and our builders could put together at the time,” says Ellis Goebel, senior vice president of business development and investor relations for Building Materials Holding Corp. (BMHC) in San Francisco, the nation's fourth-largest dealer with more than $2 billion in 2004 revenue and 65 BMC West dealer locations in 10 states. “The technology was sitting out there, but it needed a willing buyer and seller.”
As it turned out, that willingness existed one or two steps upstream as an increasing number of dealers have initiated EDI and similar systems with their suppliers. Meanwhile, more dealer Web sites offer pro customers secure online access to their private accounts (if not the ability to estimate and pay for a materials package), partner with hardline shopping services, and provide portals to relevant and detailed information about products and services to deliver 24/7 convenience if not to reap railcars of online revenue.
That emerging model is a far cry from the one predicted to render the local dealer link obsolete. “I don't see LBM dealers being threatened at all [by e-commerce],” says Sarah C. Bell, marketing director at Spruce Computer Systems, a Latham, N.Y.–based software company serving nearly 500 pro dealer customers. “They're leveraging technology to compete [in today's market].”
Linking Upstream Before BMC West could think about linking with its customers with any sort of e-commerce connection, Goebel says, the company needed to address its own tech capabilities. “There are a few systems and other technology initiatives we're working through,” he says, echoing other dealers that have recognized the same need for process development when incorporating e-commerce along the supply chain.
What became clear for many dealers as they considered their own mainframes was that connecting upstream was the first (and perhaps best) way to cut costs out of the supply channel. One-third of BMHC's invoices with its vendors are processed through EDI, for instance, and the company is working to enable an electronic payment system. EDI is now used by about half of large pro dealers and nearly 75 percent of small operations, according to a February 2004 report on the residential LBM supply chain by Harvard University's Joint Center for Housing Studies.
And unlike past e-commerce models that shut them out, it's dealers—not necessarily vendors—that are forcing the transition. “We're driving that initiative ... to get to some level of electronic transmission [with vendors] that reduces paperwork and data entry errors,” says Lary O'Connor, vice president of information systems for LumberJack Building Centers, a six-location dealer based in Algonac, Mich.
LumberJack is among several LBM yards (including TW Perry, the $120 million, Gaithersburg, Md.–based operation whose information technology initiative won a 2003 PROSALES Excellence Award) that license Spruce Computer's business management software. Spruce is one of only a handful of remaining vendors after significant industry consolidation that has left the company competing primarily with Aknaf Software and Activant Solutions (the latter, formerly CCITRIAD, acquired and supports Speedware, Enterprise, and Dataline products and is now used by members of the Do it Best network), and upstream-focused systems including Progressive Solutions.
Among other features, these systems enable dealers to gather data and share it electronically corporate-wide and with suppliers. “Dealers want help integrating multiple yards and lowering support costs” says Bell. “They see technology as a way to cut costs and help them get into new market segments.”