For companies in the building material supply chain, there are two competing strategies that are continuously at odds with one another: Do you strive to be the biggest or the best?
For most established independents, providing the best service and quality to customers is the key to profitability, while national suppliers mainly focus on the numbers – the bigger, the better. Quarterly reports and the allure of higher stock prices can make executives of national suppliers obsess about sales instead of bottom-line profits.
During my time with Wickes Lumber, it was decided that the company was going to be “the dominant supplier of lumber and building materials in America.” It is what I call a world domination strategy, which has been tried by every national out-of-business company in America. Instead of focusing on what is good for their customers and the company, their primary focus is on knocking out a competitor. Of course, it failed and Wickes Lumber closed.
The problem with the world domination strategy is that it can’t succeed because there are too many competitors. The national suppliers of today are not competing with just three other national companies; they are competing with hundreds of strong, independent businesses.
You can identify a “bigger-is-better” company based on the following traits:
• Most will match any price to keep a competitor from getting business, even if it costs them money.
• Executives spend more time trying to find out about competitors than fixing problems in their own company.
• Expansion and equipment decisions are motivated by competitors’ actions instead of customer needs.
• When recruiting managers and salespeople, the company will pay any salary to get an employee away from a competitor.
Is it any wonder that these companies fail?
On the other hand, companies that strive to be the best share these traits:
• They will match a price only if they can still make money.
• Their competitors are topics in discussions only when they do something stupid.
• Money is spent only on things needed or on surefire investments.
They recruit managers and salespeople who share the company’s core values.
Of course, the biggest difference between the strategies is how the numbers are viewed: The best companies enjoy bragging more on big bottom lines than top-line sales.
The greatest fear of most independent suppliers is that one day there will be a financially strong, well-managed national supplier that will embrace the “best is better” strategy. It could set the gold standard in service, quality, and innovation, which would wipe out competitors by creating a buzz that convinces builders they must become customers.
—Don Magruder is the CEO of Ro-Mac Lumber & Supply in Leesburg, Fla., and a former chairman of the Florida Building Material Association. Contact him at firstname.lastname@example.org or 352.267.5679.