When Ply Mart entered into an inventory pilot program earlier this year with building materials distributor BlueLinx, which became the primary supplier of lumber and panels for three of the dealer's 27 yards, Ply Mart's yard managers were skeptical about the distributor's promise to deliver product whenever Ply Mart called for it. “When BlueLinx said it would have four trucks at the yard absolutely, positively the next morning, some of our managers said, ‘Yeah, right,'” recalls Bill Hofius, senior vice president of marketing and business development for the Norcross, Ga.–based dealer.
Those managers also weren't thrilled about relinquishing their inventory management responsibilities to a supplier. This pilot, which will proceed through the remainder of this year, is definitely a change in direction for Ply Mart. Before it was launched, the dealer's corporate purchasing agent bought wood products that were brought into two yards with rail sidings and then redistributed to all the other yards. The three yards in the pilot, on the other hand, are drawing all their lumber stock from BlueLinx's inventory, with orders shipped directly to the yards. The purchasing agent now makes sure that BlueLinx keeps to its delivery schedule and keeps its prices at market rate.
“Inventory is probably the biggest consumer of cash in our industry,” explains George Judd, president and COO of Atlanta-based BlueLinx, which has similar tests underway with other dealers around the country. “We have piles of it sitting around not producing returns, and it's draining our low-margin business. So ‘just-in-time' [inventory replenishment], I think, is a requirement.” So far, the benefits of this pilot have been obvious to Hofius: Ply Mart has reduced its redistribution costs, and one of the yards has trimmed its on-hand wood products inventory to a 10-day supply, down from 30 days before the test. Most important, adds Hofius, the pilot minimizes the need for Ply Mart to expand its yards' storage capacity to keep up with customer demand. “That's probably the real magic,” he says.
Hofius sees distribution arrangements like this “as a good indication of what can happen. We can't plan our future unless we're working with suppliers that are willing to help us grow.” Such alliances also indicate how pro dealers are reaching out to distributors to help them manage their inventories at a time when home builders are more demanding and some manufacturers' product assortments seem to be multiplying into infinity.
The capability of distributors to assist dealers in this regard often depends on their own willingness to get bigger. BlueLinx, with 10 million square feet of storage across the country, is looking for more space in New York and Florida. Dixie Plywood, with 10 branches that operate as profit centers, expanded its DC in San Antonio, Texas, last year; will expand its facilities in Miami and Orlando, Fla., this year; and is building a DC in Tampa, Fla., that is scheduled to open in January 2006. Tom Heard, Dixie's director of marketing and business development, says the Savannah, Ga.–based distributor has tested just-in-time delivery with industrial accounts such as kitchen cabinet fabricators, where Dixie will deliver commodities like melamine to the customer's warehouse and take inventory every week to monitor what's used.
But the jury is still out about whether just-in-time inventory management, a concept that's been around for nearly two decades, will become a business model for dealers. Right now, “it's more premise than promise,” observes Luis Solis, president of Symbius Corp., a Boulder, Colo.–based provider of supply chain business solutions. Solis thinks the problem lies mostly with dealers that “need to get a better grasp on the demand of their customers, which would lead to better forecasting and planning.” He points out that this knowledge usually leads dealers to conclude that “they are carrying too much of the wrong stuff.”
Many dealers don't dispute that their market reconnaissance isn't what it could be, and several of those interviewed are upgrading their operating systems to refine how they track and analyze product movement. But dealers argue that production builders aren't always forthcoming with accurate and timely information about their sales projections, closings, and scheduling. “If we had more predictability, we could work with suppliers to help them improve their production cycles,” says Dick Rose, who recently retired as senior vice president of logistics for Raleigh, N.C.–based Stock Building Supply.
Rose notes that builders put even more pressure on dealers' inventories when their service expectations become unreasonable. “A builder might order left-hand doors when it actually needs right-hand doors, and it will demand that we ship out a single product, no matter what. This kind of stuff is killing [dealers] because we can never get the full price for the service being provided.”
On Demand The need for quicker delivery is even compressing the time that dealers have to fill special orders. John Hannan, president of Spahn and Rose, a Dubuque, Iowa–based dealer with 24 yards in three Midwestern states, says the dizzying array of choices available in certain categories, like millwork, roofing, and vinyl siding, coupled with the growing demand for all things new from builders, “doesn't allow for a special-order situation, which is why we're relying on distributors. More than a few of our suppliers are willing to deliver two or three times a week, and that's been a great advantage for us.”
Ply Mart's Hofius adds that all pro dealers now must seek out those suppliers “that can get us a special order within a day's notice. Those guys are the real heroes.”