In the big builders' emerging world of single-source supply deals, Wade Hooker is uniquely qualified to comment on both the theory and practicality of funneling 100 percent of purchasing through a sole source. While home building executives and manufacturers can talk all day long about setting up national and regional supply deals, more often than not a builder's local procurement manager makes those deals happen on a daily basis, or conversely, is hamstrung by them. Recently named manager of national purchasing for Dallas-based Centex Homes, Hooker spent the past three years directing regional purchasing for the company's operations in the Dallas–Fort Worth metro area, the big builder's largest regional division, and he sees the challenges on both sides of the fence.
“I understand the people who say, ‘I can't work with production builders and make money,'” Hooker says. “Suppliers have all sat in that meeting room and heard the big builder say, ‘We're going to do a bunch of houses and they are going to be ready, and we want a supply partner.' Then as soon as the supplier commits, there are dry runs, there are back charges, the builder doesn't perform, and it costs the supplier money. In a lot of cases it's nothing like [having] a true partnership.”
But Hooker senses that the market will weed out adversarial purchasing relationships in the future. And he anticipates that Centex Homes will be a leader in that regard—a prediction he makes based on his company's success in establishing single-source agreements through regional independent dealers like Dallas-based Texas Building Supply and Elgin, Ill.–based Seigle's.
“We need to mean something to our suppliers, and they need to mean something to us,” agrees Centex Homes vice president of purchasing and distribution Paul Dodge. “As our divisions have grown from 300 to 600 to 1,000-plus units in a market, we need to have suppliers that can handle the additional business, and we also expect to capture the economies of scale that come with our additional volume. If we split our business between additional suppliers, we never capture those economies of scale. So it becomes very important that our suppliers can grow with us, and we can share in the efficiencies that growth creates.”
Making partnerships like this work requires intense relationship building and supply chain engineering at the division level—and not necessarily exorbitant volume out of the gate. The ideal situation, says Hooker, is for Centex Homes to match up with suppliers that have an intimate understanding of their own operational capabilities and consequently can accurately and consistently determine where the margin is coming from and how much it needs to be. “People dying to get into the volume we have come in low [with bids], but in six months they walk away because they can't do business at that price,” he says. “I think a small guy who knows his setup [has an advantage] in understanding costs well enough to know if they can make profit on the material, on the labor, etc.”
Board Baron As Centex Homes focuses on more supply chain consolidation strategies, Hooker is aspiring to emulate the operational success he has achieved in Dallas working with Texas Building Supply (TBS), a dry-wall distributor with $7 million in annual sales that wasn't even on the Centex Homes radar screen three years ago.
TBS president Phil Kohut started out in 1962 working at drywall yards in the New York metro area, and by the 1970s he was managing locations for LMW Supply (a United States Gypsum company) in Oklahoma, Colorado, New Mexico, and Texas. After taking a brief hiatus in the '80s to run a hardware distributor in Detroit, he moved shop permanently to Dallas in 1989 and built a local reputation for managing drywall yards before retiring in 2001. But Kohut found he had too much gypsum in his blood, and the lure of opening up his own yard found him launching TBS two weeks later to freely apply his business philosophy that suppliers should back up talk of forming strong relationships with their builders by engaging them in a more collaborative and communicative business union.
His first sales call was to Centex Homes, where Kohut felt there was a culture of taking care of vendors and embracing changes in the supply chain that might lead to cost savings and efficiencies on both the builder and dealer side of the equation. Still operating in a bid-based environment where drywall subs contracted for both material and labor, Centex Homes was highly receptive to begin streamlining the entire wallboard supply process and relying on subcontractors for installation only. “What TBS wanted to do was just be a supplier—a material-only kind of deal,” Hooker explains. “What made it unique … was the fact that we would share a lot of operational and cost information.”
Instead of haggling with subcontractors on price and logistics for every Centex Homes subdivision, the big builder saw TBS as a way to separate material price and delivery logistics from the equation, allowing Centex Homes to then use the most qualified and talented labor, rather than just the most economic package deal. “For me and for the company, it was a new horizon,” Hooker explains. “If we actually do what we say we are going to do [in maintaining consistent scheduling and material ordering], then TBS will pass the [cost] savings back to us.”
Throughout the spring of 2001, Centex Homes and TBS held several meetings and ran a few trials at several subdivisions to hammer out the viability of a single-source deal. Under the agreement, Centex Homes gets a single-source supply of wallboard with assurances on product quality and availability, near error-free delivery, and the consequent savings in efficiency and cost. In turn, TBS gets 100 percent of Centex Homes' drywall business in the Dallas metro area—which in 2003 was 3,500 homes. Purchase orders are fast-tracked to allow TBS approximately four weeks to fill a house order. In addition, Centex Homes shares job-start data and projections and makes a commitment to even and consistent scheduling. The builder also agreed to move with TBS' costs, continuing to pay a certain margin over market prices as the commodity moves.