If you ever doubted that necessity is the mother of invention, take a look at the programs being created by the pro dealers that serve the largest builders and contractors.
ORCO Construction Supply, the Livermore, Calif.–based distributor of hardware and tools, this year is rolling out a program to its top 200 contractor-customers that should help those customers assess the productivity of their jobsite management. Meanwhile, Dallas-based Builders FirstSource is increasing its capacity to produce trusses, panels, and millwork; New York's Riverhead Building Supply has expanded its Web services; and Ply Mart of Georgia says its salespeople are on sites so often they've become the “right hands” of construction foremen.
“Contractors are asking us to do more work for them than ever,” says Keith Costello, ORCO's vice president of sales. “There are a lot more last-minute orders for structural products like hangers and fasteners. They want orders packaged and shipped per house instead of in bulk. And they are bringing us onto their jobsites more to solve problems.”
Indeed, builders' demands never seem to stop, and for the most part dealers have accommodated and even exceeded those requests. But dealers and distributors also say that it's hard to make money offering construction services when builders become obsessed, as they have been for months, with bolstering their margins by squeezing suppliers for discounts and lower prices. As a result, while many dealers are creating stuff, some dealers have reinvented themselves in a different way—by dropping services.
Peter Scherer, president of Brooklyn Park, Minn.–based Scherer Bros. Lumber, did that in 2005 when he got out of wall panel manufacturing. Scherer says his company introduced this service by “giving it away,” hoping that builders and contractors would eventually appreciate its value and be willing to pay for it. “That didn't happen,” he says.
According to last year's PROSALES 100 survey, 25% of America's biggest pro dealers planned to add manufacturing capacity for wall panels (38% of the members produced them already). Sixty-eight percent already manufactured pre-hung doors, 57% did roof trusses, and 50% made floor trusses. The ranks of all those categories were expected to increase by six to 14 percentage points in the coming years. Meanwhile, as of 2005 there was only one category of installed sales—for windows—in which more than 50% of the PROSALES 100 members were involved. But based on that group's plans, a majority of top 100 dealers expected one day to be offering installation services for cabinetry, entry doors, interior doors, and locksets/hardware.
Dealers reported those expectations shortly before builders began putting on the brakes last summer and pressing dealers to rewrite contracts and insert cheaper prices. The drop in housing starts also has led to more competition for work; Costello notes that where between 60% and 70% of ORCO's orders once came from customers who accepted set prices, now “we're bidding 90%, and there are six or seven bidders, where there used to be three or four.”
In this hypercompetitive environment, what can pro dealers do?
Some dealers have chosen to expand their services to include market research and Internet-accessible information about products and prices. Fred Netter, president of Stevenson, Conn.–based The Stevenson Group, calls this “intellectual support” and says it's designed to put dealers into a better position to hold onto builders and contractors as customers while the entire industry searches for a new equilibrium.
Stevenson does this through product specification and engineering. “We're re-engineering trusses [which account for 10% of its annual sales] all the time,” says Netter. “Engineers and designers are always coming up with stuff that can't be built, so the builder is relying on us to make those designs practical.”
ORCO's productivity tool is another example. This service is based on each customer's purchases with ORCO and looks at 50 indicators, including average order size and order lines, number of returns, and how often products are being picked up at ORCO's will-call centers. ORCO breaks down this information by project and even by foreman, so a contractor can tell which of its sites are being managed more or less efficiently, Costello says.
ORCO also is giving itself some intellectual support. The company is looking at how quickly each customer pays and how often it orders non-stock items so that ORCO can gauge how much it's costing the company to service each customer, says Hal Look, ORCO's vice president of marketing and business development.
Intellectual support extends to the Internet, where dealers are giving their customers access to information that might impact their business decisions. For example, more than 900 of Riverhead Building Supply's professional accounts have registered on a contractor Web site the dealer launched 18 months ago. The site allows builders to check billing, generate and reprint invoices, and receive price quotes after hours, according to Mike Kochanasz, Riverhead's director of marketing. Aurora, Ill.–based Alexander Lumber also is looking into enhancing its Web site to let builders see invoices and quotes.
Norcross, Ga.–based Ply Mart has invested heavily in back-office technology over the past few years (see “Head and Shoulders Above,” January 2007). Among its innovations are online billing and e-payments “that allow us to go right down to the 10th [of the month], without mistakes,” says senior vice president Bill Hofius. Ply Mart also recently made quotes available on its site so builders could create a standard bid file for ordering products. Making such services available to builders “helps break a tie in a competitive situation,” Hofius figures.
High tech hasn't replaced high touch, however, nor has it affected the continuing need for cash flow. Netter says The Stevenson Group has sent bookkeepers to builders' jobsites to help them get their purchases made and “because we want to get paid.” Along those same lines, about 18 months ago Scherer Bros. Lumber started managing its costs, inventory, and payroll more closely, in part by refusing to extend credit to builders for spec or model homes. “We shortened our reach and passed up some business,” says Scherer. He thinks that, in the long run, his company made the right decision, but turning off the credit spigot is definitely a risk, as builders and especially contractors have come to expect dealers and distributors to offer generous payment terms for purchases made. In that vein, credit is a “service” that ties dealers to their customers as much as any other.
Manufacturing More Sales
For at least a decade, production builders—especially those in multiple markets—have been calling on suppliers to assume more of their construction processes, and all that's connected with them, as a prerequisite for their materials purchases. Many big dealers have responded.
In the Chicago area, nine of Alexander Lumber's 41 yards supply local production builders, and those locations are buttressed by a roof and floor truss plant and boom trucks for more complicated deliveries. Joe Weber, Alexander's vice president and general manager, says his company recently has been “pressured” by builders to get into millwork fabrication and wall panel manufacturing, the latter of which he estimates would cost at least $750,000 to start up.
Builders FirstSource (BFS), for one, continues to fortify its manufacturing infrastructure, which includes a 65,000-square-foot plant for walls and trusses that came on line in San Antonio in October and a 45,000-square-foot truss plant it's building in Greenville, S.C., where BFS is also increasing the size of its millwork facility by 50%, according to CEO Kevin O'Meara.
Stock Building Supply operates 45 truss plants, six wall panel plants, three door shops that are 100,000 square feet or larger, and 50 smaller shops that hang doors and fabricate windows. The Raleigh, N.C.–based dealer is also currently testing a computer-aided whole-house design program called Optiframe, which was developed through a joint venture between saw manufacturer MiTek and Weyerhaeuser's iLevel. “Right now, we might be using up to three different designers for a job, and we'd love to get that down to one,” says Joe Appelmann, Stock's senior vice president of operations.
Big dealers appear to be of three minds about installed sales. The first group, which includes Alexander, doesn't offer it at all. A second group offers it, but sometimes only grudgingly and at other times with puzzlement over how to succeed in the business. Into this group falls Stevenson, which doesn't even advertise its service, and Ply Mart, which sees increasing momentum for installations of categories like mirrors and closet organizers but still hasn't decided whether its trim-installation program will ever evolve beyond what Hofius refers to as a “pushing products” venture.
The third group is convinced installed sales is an arrow it must have in its competitive quiver. The Building Center, an independent dealer based in Pineville, N.C., has offered installation of doors, trim, and roofing for about four years, and the service accounted for $14 million of its $150 million revenue in 2006. “Installed sales were up double digits last year, and we still have a good outlook” for growth, says Skip Norris, the dealer's president, who recently hired a contractor to handle framing jobs for builders.
BFS offers installation in most of the markets it serves. And Stock not only installs trim, doors, windows, and siding in several markets, but also operates a turnkey framing operation in Las Vegas. Appelmann says his company would like to replicate in other regions of the country the “strong” interior trim program it operates in the Southeast and Central Florida. “We also do a wonderful job in Raleigh,” he says. “The key is having the right folks dedicated to that business. Where we stumble is when we try to do [installation] as a subset of our distribution business.”
...But Don't Take Over
Still, even as builders seem more than happy to outsource installation of certain products, and even as dealers say their role on jobsites has become more visible and important, it appears that most builders are dead-set against handing off project management of their jobsites to suppliers or dealers. Even Appelmann notes that Stock doesn't get many requests from production builders for project management services. “For all their talk about wanting to be land developers primarily, most builders are still reluctant to give up control over their cycle-time coordination,” he says.
Michael Mahre, CEO of Select-Build, San Francisco–based Building Material Holding Corp.'s construction services division, says that, with exceptions such as KB Home and Lennar, most builders don't see his company as a “solution” to their project-management needs, even as they've been cutting their own staffs during this period of market volatility.
Pro dealers whose customers are primarily custom builders or remodelers say they are rarely asked to assist jobsite supervisors beyond occasional contact about whether products are delivered on time.
“I don't see the custom guys ever moving in that direction because there's always an issue of quality,” says Richard Cortese, president of TW Perry, a Gaithersburg, Md.–based dealer that gets most of its sales from custom builders, remodelers, and deck builders. “When they are building a $3 million home, they want to stay on top of every detail, especially when the buyer is monitoring the job on a regular basis.” More regularly, its customers call on Perry for advice about products, “particularly windows,” says Cortese. The dealer also works closely with builders' installers to make sure they're ordering the right truss packages.
“The big builders are in a panic mode right now,” Mahre says. “Their main question to us is ‘How quickly can you give us more of a discount?' But when things settle down, we think there will be more opportunities for us to demonstrate how we bring more efficiency to the construction process.” SelectBuild intends to show its prowess in such areas as supply chain management and value engineering. Other dealers, no doubt, will pick other categories. It's all part of the need to adapt—and invent.
—John Caulfield is a contributing editor for PROSALES.