At one time or another, most commodities buyers have been frustrated with the inefficiency and lack of precision inherent in manually gathering lumber price and availability information, negotiating prices, and closing deals. Four years ago, it was this drag on resources and time—and a desire to operate in the most efficient way possible—that prompted Big Buck Lumber, a two-location dealer based in Racine, Wis., to start using BuyMetrics, a software system that automates lumber purchasing and negotiations. BuyMetrics automates the process of issuing requests for quotation, accepting quotes, ranking them, and helping a buyer make quick decisions that are relayed through the system to the winning bidder. Big Buck purchased an early generation of BuyMetrics from a company called ProBuild, which is based in Atlanta.
Valerie Hansen, president of Big Buck, says the system places the buyer firmly in control of the process and yields lower prices. “The typical lumber dealer puts 3 percent on the bottom line, so this is a really important issue,” she says.
As a baseline, the buyer must know his or her lumber needs—quantity, quality, species, and so on. Before issuing an RFQ through BuyMetrics, Hansen or others in the company check with various data sources to find the market price for lumber delivered to a major location on the previous Friday. That established price serves as the metric or benchmark against which bids are measured. The quote farthest below the baseline metric of 100 is cheapest, while the highest quote above 100 is most expensive.
The RFQ is distributed in e-mail to suppliers with which Big Buck has existing relationships, and it contains a link that takes the supplier to a Big Buck–branded Web page, where that company can submit a price. Once the quotes arrive, Hansen typically makes decisions very quickly, which has prompted suppliers to move fast as well. Bids can start arriving within 10 to 12 minutes after a notification is sent out, Hansen says. “They're responding quickly and that allows me to make my buy quickly,” she explains. “If the market's moving and I need to lock something down, I'm not just sitting here frustrated waiting for some guy to get back from lunch and call me.”
The system helps Big Buck manage a time-consuming, somewhat manual process with minimal intervention and a dramatically reduced time commitment. “It's allowing me as the president of the company to make the purchases and the judgments of what needs to be bought for my core item,” she says. “All my business is buying and selling lumber. Most presidents or CEOs under the old system had to hire somebody else to make those calls.”
Other data from Hansen's BuyMetrics purchases indicate her company is saving money relative to other dealers when it makes purchases through the system. For 623 RFQs issued over a three-year period ending October 2004, the average purchase that Big Buck made was at an approximately 2.5 percent savings when compared with the best price in the market on the prior Friday (the specific metric is “prior Friday Random Lengths carload price delivered Chicago”). In other words, Big Buck has consistently done better than the “best” available price.
Big Buck paid a $3,600 one-time fee for the BuyMetrics system and spends an additional $300 per user per month. ProBuild's system is in use among 110 buyers. Among those 110 buyers, the annual rate of spending with BuyMetrics is more than $1 billion, says Alan Gay, the company's president.
“If you don't have a tool like this, purchasing requires sitting at a phone two to three hours at a time,” Gay says. “This lets them achieve that result without sitting there.” —Tom Smith is a freelance writer in Amherst, N.Y.