Think of your LBM life for the past seven years as like being in a triathlon.
The housing crash tossed you into the swimming part of the race, forcing you to focus on not drowning. When at last you stagger onto dry land, you can see blue skies, but you know the race isn’t over. For this leg, you climb onto a bicycle and continue the race in a new way. But unlike the swimming or running sections of the event, this leg won’t be decided solely based on how hard you work. It also will hinge on how good your bicycle is.
In the building material supply triathlon, data is that bicycle, and it’s already helping determine who will move to the front. Dealers and distributors nationwide are pulling ahead by collecting, analyzing, and deploying a mountain of information about operations, customers, and sales. Some of that data, and the technology required to report it, have become available only in the past few years. Other data can be found in age-old subjects, but today you can see details that would have been too small to spot a few years ago.
The general business name for this trend is Big Data. The term can sound ominous, conjuring images of Google—or perhaps the CIA—employing supercomputers to extract a teaspoon of useful detail from a Niagara Falls of information. But in LBM, Big Data is more about something else: Moving from management based on serving an average customer toward providing services that are customized to the individual. And, at the same time, generating maximum potential profit from each customer every time.
You needn’t be big to do this. Leonard Safrit, owner of the modestly sized Beaufort, N.C.–based Safrit’s Building Supply is working with technology partners DMSi and DQ Technology to figure out exactly how much it costs to deliver a load of goods to a customer. The calculation involves 11 variables, many of which are derived from a slew of other calculations. For instance, entering just one variable—delivery cost—requires that you first gather and crunch data on the number of miles traveled to and from the jobsite, the cost of fuel, the driver’s pay, how much the loaders get, and the amortized cost of the vehicle. At most old-school dealers, collecting such numbers requires visits to virtually every department. And some figures can’t be determined at all unless you have technology such as GPS devices on company trucks.
But once you get it, expect surprises. “The variation from one customer to another is unbelievable,” declares Safrit, ProSales’ 2013 Dealer of the Year. “And if you’re selling something cheap like studs, you’d better know those differences.”
Safrit uses his formula to win business and to avoid losses. With it, he can calculate margins on some jobs that beat competitors and yet still keep him in the black, and learn when to walk away from seemingly profitable jobs that ultimately would be financial sinkholes. The formula also helps him analyze where he can trim costs and thus boost profit.
“Freight is still the fattest rabbit we’ve got—it’s 4% to 16% of sales,” he notes. “So how do you price the job? Well, does the customer use a credit card? How many gross dollars does he pay on average per trip? How far away is it? You’ve got to be able to adjust to that.”
The Economist sounded a similar note in a recent article. Big Data’s value, the magazine says, comes from enabling a business to generate lots of small gains from lots of small tweaks. Charlie DiReda, owner of Coastal Supply Co., a $7 million dealer and manufacturer based in Delray Beach, Fla., learned that when his door-hanging operation installed software from Ponderosa that enabled him to learn things about his operation that his old QuickBooks never revealed.
“The initial thing that surprised us most was our true margin,” he says. “We were making less than we thought we were making, because once you put in labor per piece and per foot and deduct everything, we found we were about two to three points less profitable than we thought. We’ve been able to adjust and still be super competitive.”
LBM people are learning that data can tell you things traditional benchmarks or back-of-the-envelope calculations cannot. Take pricing. Many people rely on buyers, intuition, and occasional price checks of competitors to decide what to charge for goods. Do it Best’s pricing recommendations weren’t much different. Now the co-op’s pricing analysis team suggests retail prices using a database with details from myriad sources, including automated data scraping from e-commerce sites. It believes that using data as a guide will lead dealers to higher margins than they’d get from simply trusting their gut.
Improving operations through data isn’t a brand-new thing; consultant Jon Davis recalls creating spreadsheets decades ago as part of an effort at Star Lumber, in Wichita, Kan., to understand which customers were worthwhile and which should be dumped. But what they’re doing remains rare, industry observers say.
“Pre-recession, I saw a mentality that ‘sales solves everything,’” says Steve Holt, direct of implementations for Majure Data, a creator of warehousing data management software that’s based outside Atlanta in Milton, Ga. “You’re leaving a lot of money on the table.”
It’s understandable why some dealers haven’t evolved. Struggling to survive the housing crash led to budget-slashing that left management scarred. In addition, technology keeps advancing so much that one can now do things once restricted to the Fortune 500.
Consider e-commerce. Anyone who has bought a product on Amazon knows how extensively that business uses data to customize its Web pages and email promotions. But when LBM dealers and distributors create their own e-commerce offerings, they face a problem that Amazon generally doesn’t worry about: variable pricing. That practice of charging customers different amounts for the same product, even if the price differences are based on a few tiers, has left many dealers posting lots of “call for pricing” messages on their sites.
That’s changing, however. Window manufacturers already offer websites in which the price shown for the window being configured will vary based on who’s doing the configuring. The price also will change depending on whether it’s the dealer or the ultimate customer doing the research.
Such services provide the kind of high-touch support that customers are expecting no matter what the dealer’s traditional opening hours are. Kuiken Brothers has learned not to ignore this expectation. The New Jersey–based dealer for several years has offered a members-only service that lets customers pay bills and review invoices, statements, and pricing. The system used to shut down between 2 a.m. and 3 a.m. to upload fresh data, but soon noticed it was getting customer complaints. It turned out that a notable number of customers were working at 2 a.m. The site now makes this information available 24/7.
Kuiken Brothers’ online service puts it in the minority among dealers, even among ProSales 100 members. Of the nation’s biggest dealers, just 15% offer online order tracking, 18% have online inventory/pricing services, and 42% maintain online customer accounts. That’s in part because dealers are notoriously stingy about IT spending; 58% of participants in the ProSales 100 said they plan to spend no more than 0.5% of this year’s sales on technology products and services.
Larry Frey, a former chief information officer for BlueLinx who now is president of the AlignIT technology consultancy, estimates the actual number is closer to 0.7% of sales. But that’s still way behind the 3.3% average that Gartner found in a survey of 19 industries.
Frey doesn’t think that the relative amount of spending will change, but where it goes will. He predicts that dealers and distributors increasingly will get rid of hardware and maintenance personnel and turn to Internet-based services, often referred to as “cloud computing.” These services will consume perhaps 0.4% of revenue, Frey predicts, leaving companies free to invest the remaining 0.3% in other tech.
That’s important for competitive reasons, he says. “The big guys have taken care of their accounting functions. Now they’re asking ‘How can I serve my customer better [through information technology?’]” he says. “Small firms still use technology for accounting.”
That’s understandable given that digitized customer service might not seem all that important when you’re in a small town. But those days are quickly changing. A Farnsworth Group survey found that 49% of builders and 39% of remodelers go both online and into stores to buy materials. Smartphone use by people aged 25 to 34 is 75% higher than for folks aged 45 to 64, while Internet use is 12% higher. And by 2017, the total of mobile units (smartphones and tablets) in the U.S. is forecast to grow by 47% from 2013’s numbers.
“Real-time communication is expected today,” declares Andy Davis of the Marwin Co., of West Columbia, S.C., a manufacturer of attic stairways, bi-fold doors, mirror doors, and pocket-door frames. “We need to put access to answers in the hands of our customer service personally so they can immediately satisfy our customers.” Marwin recently installed a Ponderosa system that, among other benefits, lets its employees see on one screen its current and future orders, inventory, and planned production.
Given such growth, it makes sense that the No. 1 technology innovation that ProSales 100 dealers plan to invest in this year is mobile applications; 42% chose that category. One example is Hines Supply, a subsidiary of US LBM, No. 13 company on the ProSales 100. Hines has a mobile app that lets users track jobsite deliveries, view photos of the delivered order, and check account information. All other parts of US LBM plan to roll out similar apps by year end, US LBM marketing manager Mike Kauchak says.
Robert Bowden Inc., of Marietta, Ga., has long written its own ops software, but last month it chose to switch to Epicor’s BisTrack system, in part to boost mobile capabilities as it seeks to keep up with surging demand in America’s fifth-busiest housing market.Thirty percent of the PS100 plan to get a customer relationship management system, the same share intend to add delivery tracking, 12% will switch to a new enterprise resource planning system, and 12% will add a warehouse management system.
LBM consultants Davis, Ruth Kellick-Grubbs, and Jim Enter all say that they’re seeing a slow increase in awareness of the importance of data and technology in the industry. Kellick-Grubbs notes most dealers already have data that’s easier to extract and analyze than they might think. But for that to happen, they say, you need to change your mentality.
First, regard data collection and analysis as vital. If you’re uncomfortable doing that, find someone who isn’t. Also understand that management via Big Data is different from using the 80-20 rule, in which 80% of potential improvements come from just 20% of the changes. Big data, as The Economist notes, is more about endless testing of small things to squeeze the last 20% of improvement. Such work requires a willingness—and a budget—to test and review constantly.
Before doing all that, though, Enter believes you need to make an even more fundamental change in attitude regarding IT. “My 6-year-old granddaughter turns on a Kindle like it’s a light switch,” Enter says. “We still are an industry that’s dealing with technology. We should be dealing with information.”