Ask pro dealers about how builders buy from them, and most respond that purchasing decisions are made, by and large, locally. “Builders are organized pretty much the same way we are, and their divisions still have a lot of say in what gets bought,” says George Finkenstaedt, vice president of market development for Redmond, Wash.–based Lanoga Corp. “Are builders putting together ‘cafeteria' [buying] programs on a national basis? Yes,” adds Nick Massengill, vice president of sales and marketing for Marietta, Ga.–based Robert Bowden (RBI). “But are they also giving their local divisions programs to choose from? Also yes.”
Massengill is confident that three-yard Robert Bowden—with operations including a division that caters exclusively to large production builders in Atlanta's 20-county metro area—can meet builder needs because it “brings a lot of firepower” to any supply relationship, including $12 million in inventory and 60 delivery trucks. Dealers like RBI need all the ammo they can muster at a time when the sheer velocity at which the housing industry is putting up homes these days—it's on pace for another 2-million-unit year in 2005, during which D.R. Horton, the nation's largest builder, is expected to be the first ever to deliver 50,000 homes in one 12-month period—is forcing large builders to streamline their supply chains to achieve their growth ambitions. That has sometimes meant trimming their supplier rosters and favoring those that can execute the distribution of certain categories on a regional or even national level. Many large builders have in place multi-state purchasing agreements with suppliers for such products as appliances, fireplaces, water heaters, carpeting, locksets, faucets, cabinets, and even windows.
“The ‘sweet spot' for builders' regional or national programs seems to be those one-SKU-type products that they can leverage across geographies,” says Dave Snyder, vice president of national sales and marketing for Dallas-based Builders FirstSource (BFS). Mac Hines, vice president of sales for Buffalo Grove, Ill.–based Edward Hines Lumber, adds that when a giant builder like Pulte Homes negotiates a national deal with manufacturers like Louisiana-Pacific or Merillat, the trading partners “dictate the rules of the road” in terms of pricing and specifications for intermediary suppliers in different markets to follow.
The general consensus has long been that lumber and most other building products don't lend themselves to these kinds of buying arrangements. The production and supply of commodities like roofing and drywall are too erratic and driven by local needs, they say. The species of wood called for in different areas of the country varies too widely, as do the ways that homes are built, for any one supplier to accommodate builders' demands everywhere. That being said, some pro dealers and distributors continue to explore ways to expand their business with large builders.
For instance, Avenel, N.J.–based Bradco Supply, which distributes roofing, siding, and windows from 140 branches in 27 states, recently opened a new location specifically to service one builder customer. But Brad Segal, Bradco's president, would not say where or with which builder, and didn't want to discuss how his company works with large builders regionally except to note, “I think we're a little ahead of our competition.”
The accuracy of his claim is hard to assess because a number of large dealers and distributors either didn't return phone calls requesting comment on this subject or wouldn't provide details about the extent to which they are coordinating within their operations the distribution of construction materials to builders in multiple markets. But it is likely that competitive big builder strategies are being strategically initiated under wraps. For example, Snyder—whom Builders FirstSource hired from Georgia-Pacific in April 2004 to synchronize its overall sales strategy and initiatives “with a particular focus on large national builders”—tells PROSALES that he doesn't want to tip his company's competitive hand by revealing too much in print.
Some pro dealers seem convinced they somehow need to tap into these purchasing agreements to stay relevant in a consolidating housing industry that's increasingly dominated by huge builders. But some suspect that large builders are interested primarily in pushing costs down the supply chain to dealers and distributors, which place their margins at risk when they commit too aggressively to selling builders over wider geographies, especially when turnkey installation gets thrown into the mix.
“I personally believe that [integrated supply chain management] would be such a huge help to this industry,” says the marketing vice president for one of the industry's largest national distributors, who requested anonymity because he doesn't want to jeopardize his company's business with builders. “But the reality is quite different. When builders suggest that they are buying centrally, what they are talking about is product, not services,” for which, this source implies, builders balk at paying full price.
Staying Inbounds Despite the fact that larger builders control an ever-growing share of home building activities, product distribution is still local in most areas. Jackson Lumber & Millwork, with three locations in Massachusetts and New Hampshire, isn't under pressure to expand the parameters of its market coverage, which goes out about 50 miles for each yard, because “there aren't many big builders up here and the projects are smaller,” says Jackson's president, Al Torrisi.
East Rutherford, N.J.–based Allied Building Products, which distributes roofing and siding from 138 branches in 29 states, isn't pining for regional supply deals with large builders, either, because its customers are mostly local contractors. “Builders will dictate the product that they want, but they don't seem to be dictating how we sell it to them,” says Allied's COO Bob Feury Jr.