The home building industry has never been known as an early adopter of business best practices; supply chain management (SCM) is no exception. Yet the industry is rapidly changing. Six of the 15 largest production builders discussed supply chain or similar operational efficiency topics in their 2005 annual reports. Sixty-one percent of the attendees at the 2004 Big Builder Conference, which was hosted by PROSALES' sister publication BIG BUILDER magazine, elected to attend the supply chain panel session when five other subjects were presented during the same time slot. And the Institute for Supply Management (ISM) reports a fourfold increase in member registrations from the construction industry between 2003 and 2005.
It's apparent that the construction industry as a whole, and specifically the production-home-building segment, is in the early stages of rethinking how it should create customer value with the help of SCM. Numerous factors are converging to shape this trend: material shortages, interest rate fluctuations, industry consolidation, fragile labor markets, and new managers from outside the industry, to name just a few. For the pro dealer, this means there is no better time than now to begin to rethink your business model to leverage supply chain fundamentals. Here's how: First, get comfortable with the definition of SCM and how it applies to your business. And second, begin answering questions in the five core areas that comprise supply chain management.
Supply Chain What? According to the Council of Supply Chain Management Professionals, SCM “encompasses the planning and management of all activities involved in sourcing and procurement, conversion, and all logistics management activities. Importantly, it also includes coordination and collaboration with channel partners, which can be suppliers, intermediaries, third-party service providers, and customers. In essence, SCM integrates supply and demand management within and across companies.”
To help clarify this definition and make it more relevant to production home building, the figure to the right illustrates the typical activities in SCM that correspond to builders, dealers, trades, and product suppliers. It helps to think in terms of three types of process flows: informational, physical, and financial. When you break down your business processes into these three well-understood categories, you quickly begin to see that SCM is an everyday opportunity to create and deliver more customer value.
Careful Analysis Every completed home is the product of a complex supply chain of participants: at least one home builder, as many as 10 dealers, between 50 and 65 trades, and hundreds of product suppliers. SCM in home building isn't easy, especially in the production market. But it is important, and there are proven ways to put it to work.
It is helpful for a management team to approach SCM by addressing three core subjects about the business with staff: strategic matters (annual), operational matters (weekly/monthly), and tactical matters (daily). Then the support mechanisms should be addressed: organization and information systems. Whether conducted internally or with the help of a third-party advisor, management should plan on a few different sessions lasting two to three hours to make decisions and action plans.
- Strategic Matters: annual guidelines to align management and external stakeholders on important performance, investment, and marketing/customer subjects.
- Operational: weekly/monthly disciplines that result in the organization achieving exceptional customer value.
- Tactical: daily actions and routines to achieve outstanding customer service.
- Organization: the optimal design, resource mix, and development activities.
- Information Systems: formal information systems to deliver information with which to make optimal decisions.
As an example of the detail that goes into these processes, let's address two of them—Strategic and Information Systems—by asking the questions that pro dealer management will need to answer.
