Last fall, National Lumber of Mansfield, Mass., held its sales meeting inside the plant of its Reliable Truss and Components division, which has been part of National’s operations since 2003. The dealer conducted the meeting there to remind its 40 outside salespeople “of all the things we do,” says Tim Collins, Reliable’s general manager, and to reinforce the centrality of component manufacturing to this pro dealer’s business strategy.
It’s been easy for pro dealers that make components to forget why light manufacturing mattered during a prolonged housing recession that has forced many of them to sharply curtail production of trusses, wall panels, stairs, and custom millwork.
Attrition in this sector has been steep: from June 2007 to February 2012, membership within the Structural Building Components Association (SBCA) fell to 410 from 827. But the companies that survived should have a competitive advantage, says Kirk Grundahl, SBCA’s executive director, as the housing market comes out of its coma with a shortage of skilled labor to take on any significant upswing in construction.
Even during the recession’s depths, few pro dealers that did light manufacturing abandoned it entirely. Today, most say they’re glad they persevered, because supplying components gives them a leg up on business they otherwise might not get. Indeed, when ProSales interviewed Collins in March, Reliable—whose markets span from the Canadian border to New Jersey—had completed its busiest 12 months ever.
“If you’re a one-trick pony in this environment, you’re in trouble,” asserts Don Magruder, CEO of Ro-Mac Lumber and Supply, which operates a truss plant on four acres in Leesburg, Fla. “Builders are seeking to buy as much as possible from one company.” But these dealers also confess their light manufacturing operations face profitability and overcapacity issues going forward. And some see growth coming more from expanding into new products and customer groups than from new geographies.
For more than a half century, the Richmond, Va.-based pro dealer Ruffin & Payne has been making trusses. But during the recession, president and CEO George Haw III considered closing that plant. He says now that he kept those musings to himself so as not to create a panic within the company, which is employee-owned. Instead, the dealer reduced personnel but continued to subsidize the plant. Keeping it open, while a challenge, turned out to be the right move, as light manufacturing gives Ruffin & Payne “an ‘in’ with contractors,” Haw contends,“especially those building custom homes that need to make changes quickly.”
Other pro dealers agree that light manufacturing can be a deal maker for them. “If you don’t have a truss plant, you could lose other business, like the framing package,” says George Fishtorn, general manager for Kimal Lumber in Nokomis, Fla., whose motto during the downturn has been “Here Today. Here Tomorrow.” But like other pro dealers, Kimal Lumber has had to adjust its plant’s expenses to stay competitive under tougher business conditions, says Fishtorn.
84 Lumber whittled its 84 Components division from more than 20 plants to four that support between 75 and 80 of its lumberyards in the Pittsburgh, Nashville (Tenn.), Baltimore and Charlotte (N.C.) markets. When asked why 84 didn’t just close this division entirely, Mike McCrobie, its vice president of installed sales and component manufacturing, says light manufacturing is worthwhile because “builders want to buy packages more than ever.” (The 84 Lumber yards that aren’t serviced by its plants buy components from other suppliers, “and you have to be careful about who you partner with,” he cautions.)
Denver-based ProBuild also spent the last few years consolidating and rightsizing its plants. But the dealer remains committed to light manufacturing from its 31 component plants and 46 millwork facilities. “We’ve focused on process efficiencies and technology,” says Lonnie Bernardoni, ProBuild’s senior vice president of manufacturing. Many of its factories have upgraded to the latest table and auto setup equipment and have undergone “broader re-engineering,” adds Ron Williams, area vice president of component manufacturing.
The housing recession notwithstanding, prefabricated components alone still account for nearly one-fifth of the annual revenue at Builders FirstSource (BFS). Its light manufacturing division has been “pretty close to break-even” over the last few years, says vice president of manufacturing Fred Schenkel, as this Dallas-based pro dealer “removed all excess costs,” closed a handful of plants (it currently has 44), and mothballed two, in Lake City, Fla., and Hagerstown, Md.
Too Much Product
Schenkel is convinced that BFS’ edge in light manufacturing is its willingness to install what it produces. “Builders are relying more than ever on those [combined] services,” he asserts. McCrobie of 84 Lumber adds that over the past few years, his company’s light manufacturing division “has taken the next step” by offering to serve as a subcontractor on the multifamily and apartment projects for which it supplies components.
Like many pro dealers that make components, light commercial and multifamily projects are what kept Reliable going during the housing recession. To be a bidder for some commercial projects, Ruffin & Payne certified its plants via the Forest Stewardship Council, a certification group for green lumber. In 2010, it hired a salesperson specializing in light commercial. And the dealer recently took on a window line that caters to commercial and high-end residential contractors, says Haw.
SBCA, Grundahl says, urges members to look for new products to add to their light manufacturing menus. “The more you sell that’s unique, the better,” he says, pointing specifically to “smart components” that strengthen wall structures. Reliable Truss now makes insulated headers that meet new local energy codes. It also started applying glue to I-joists so crews don’t need to do that task before installing the component at the jobsite.
Whatever dealers make, they say quality control is key. Executives from ProBuild and BFS insist that quality is a differentiating factor in how they market their component products. And those dealers that can demonstrate quality in their manufacturing should benefit from what many predict will be a larger trend among builders to use more components because there simply won’t be enough framers to hire when demand for new construction pops in late 2012 or early 2013.
Whether more business translates into healthier margins, though, is another matter. Component pricing will remain soft, say dealers, until there’s greater balance between supply and demand. In Florida, Ro-Mac’s truss plant is operating at only 55% to 60% capacity. “And that’s 10% better than a year ago,” says Magruder. ProBuild’s plants could produce as much as 30% more product, on average, before they’ve reached full capacity. “That’s why our primary goal is to drive utilization out of existing facilities,” says Bernardoni.
Competition can be fierce. The Richmond market—which for truss makers stretches up to northern Virginia and down to the Tidewater region—has Ruffin & Payne, Stock, 84, ProBuild and BFS (in nearby Culpeper, Va.). And that list doesn’t include national builder NVR, which accounts for about half of the starts in northern Virginia and “supplies 85% of those starts” from its own component factories, says Haw.
Right before the housing downturn reared its head, Ruffin & Payne was preparing to expand its truss plant. Haw thanks heaven it didn’t, and sees growth coming from expansions into custom production of stairs, entranceways and molding.
“You have to have a different mindset than in the past” about growth, explains McCrobie of 84 Lumber. “Before, we weren’t thinking about break-even points, and figured we’d just build our way toward that. Now, we need to make profitable decisions,” which is why he believes future plants will be “the smallest a company can operate and make money on,” and be either expandable or compressible to align with demand.