Here's a statistic that will probably make you nervous: Two-thirds of big builders believe that the home building supply chain could be made more efficient if manufacturers would stop protecting their distributors, according to the 692 respondents to a study conducted this year by BIG BUILDER magazine, a sister publication of PROSALES. But don't panic just yet. Luckily, when asked the same questions in a companion study, most manufacturers disagreed with this statement.
These findings were unveiled in late October at the American Housing Conference (AHC), which was produced by PROSALES' parent company, Hanley Wood, LLC, Sept. 20–21 in Chicago and attracted 350 attendees from across the construction industry to hear economic forecasts and get the latest word on trends in the hottest building markets. No doubt, the big-builder sector is still on fire. But it also continues to fuel the great debate as to whether or not lumber and building material distributors will remain an integral part of the production-building supply chain or end up bound into a secondary role by direct deals between big builders and manufacturers. The opinions are split by about a 10 percent margin, according to the BIG BUILDER study. Forty-six percent of the respondents would prefer local-level relationships with suppliers and 37 percent favor national-level negotiations. Approximately 16 percent did not respond, so that leaves some room for speculation as to how close the scales actually weigh.
At both the AHC and the NLBMDA/ ProSales Industry Summit, which took place in Vancouver, Canada, at the end of September, I heard heated discussions about this topic, and I wanted to share some opinions that fall on both sides of the fence.
The Good News. For the past four years, we have put together builder panels for our Industry Summit, which has been held in partnership with NLBMDA for the last two years. This year's panel focused on dealer/big-builder partnership strategies outlined by executives from Colorado-based Village Homes, a privately held company that currently is building 650 homes a year, and California-based Standard Pacific Homes, now the 11th largest home builder in the country. Standard Pacific works in 31 major markets throughout the country and expects to reach 15,000 closings in 2006.
Both builders are focused on enhancing partnerships with dealers and leveraging them to make the supply chain more efficient. Standard Pacific, for example, is looking for suppliers that bring value to the table. Scott Hearty, vice president of regional purchasing, told the attendees that he is targeting five areas to create a better distribution network by teaming with dealers willing to analyze Standard Pacific's business needs; dedicate resources to make the building process more efficient; take creative approaches to solving problems; adopt pricing strategies that consider volume leverage; and share management information across the channel.
Village Homes' director of purchasing, Ron Alberts, shared similar views and focused in on the need for supply “relationships” that develop trust between dealers and builders for long-term “mutual” benefits. (You can read more about Village Homes' partnership with Home Lumber in this month's Market Matters article, page 81.) He stressed the need for dealers to incorporate value-added services that will differentiate you from the competition.
The Bad News. There is a big, growing challenge for dealers to offer more to garner big builders' business. At the AHC, a panel of big builders and manufacturers discussed the fact that they believe there is a lot of inertia in the distribution sector. But if you consider all of the dealers now entering areas including construction services, truss manufacturing, and installed sales, it's clear that many distribution companies are actively stepping up to the plate. More needs to be done to promote these new ventures within the supply channel, market services, and form partnerships to change perceptions such as this. The value of new and diverse business ventures is dependent on communication and strategic alliances. Now is the time to tip the scale in your favor.