More and more building material dealers are asking to get vendor-managed inventory in their yards, a quintet of officials from two-step distributors say, but the distributors' response to the idea ranges from flat rejection to only occasional acceptance.
Speaking in Baltimore on Monday to decking manufacturers, the two-steppers also confirmed the widespread perception that dealers are buying less inventory and counting on distributors to ship products at a moment's notice. They also gave some ideas on the best ways to increase sales, but warned that more bad times lie ahead.
"This winter, we're expecting [conditions] to be bad," said Carl McKenzie, director of product management at U.S. Lumber Group. "Dealers are allergic to inventory, and we're going to be allergic to credit."
The five officials were invited by Principia Partners to speak at the consultancy's 2009 Wood-Plastics and Natural Fiber Composites conference. Sitting at the dais with McKenzie were: Scott Babbitt, marketing director at Boston Cedar; Richard Goering, a general manager at BlueLinx; Bob Higgins, director of national accounts for Parksite; and Bob Lattanzi, northern division regioal manager for Hood Distribution.
With vendor-managed inventory, the vendor places a product in the dealer's yard but continues to own it. The dealer doesn't actually buy the material until the moment it sells the goods and pulls the products from its storage racks.
"We're asked daily about this and we do it occasionally," McKenzie said. "There are places where you have [a strong, long-lasting relationship] and it makes sense. We'll do it if it builds sales."
Goering said BlueLinx also offers vendor-managed inventory, but the goods it offers under that program don't ultimately sell at the same price it offers if the dealer buys the goods upfront. But there are times, particularly with decking, in which vendor-managed inventory can be good for vendors, he said. That's because he believes dealers are most likely to sell a product when it's stockpiled in the company's yard.
For the other three distributors, vendor-managed inventory is off the table. "Yes, we're being asked, and we're not doing it," said Lattanzi.
"This issue came up about a year ago, and we decided no," Babbitt said. "We haven't wavered from that, and I don't expect that we will."
Added Higgins: "A lot of dealers are asking for it, but..." Among other problems, there are insurance issues and bank covenants to deal with, he said.
The five did agree that both general and specialty building product dealers are keeping inventories low.
"Basically, we're being used as a bank right now," Goering said. "The retailers that I've seen have got the sign up [that a product is available for sale] and they expect us to have the product there the next morning. I don't see any 50-truck buys."
McKenzie noted that it's hard for dealers to keep a complete inventory in any case, because manufacturers are steadily widening their product lines. For instance, several distributors said they wished that decking manufacturers would create a single composite board that would accept both hidden fasteners and traditional fasteners drilled through the deck's face. That would eliminate the need to stock two different versions of what's essentially the same deck board, they said.
Increasing a product's variety does not on its own increase value, McKenzie stressed. "I don't get a lot of calls for colors and textures not represented in the market," he said. "We don't need 500 different colors or railing options. We probably need three." Lattanzi sounded the same note in response to anoteher question about trends in railing. "People like the wide variety of colors as long as it's white," he joked.
Asked how to get more of their product into dealers' yards, several distributors said putting deck units into kits can help, if only because it helps the dealer and ultimate customer avoid missing key parts for the project. They also said they generally prefer situations in which customers are pulling demand through the system rather than vendors pushing interest in their goods. One reason why, they said, is that manufacturer efforts to persuade dealer staff to promote a product can be wasted if that staff person leaves the company. "Who we train today might not be in the industry tomorrow," Goering said.
"If you can get the consumer pull, that's the preferred product line," Lattanzi said. But McKenzie then added that "brand without support of the manufacturer doesn't get the job done." And Babbitt commented that manufacturers need to continually build the brand. "Just because the customer has asked for it today doesn't mean the customer will continue to ask," he said.