Put “pipeline” and “Hawaii” in the same sentence and most people conjure an image of the infamous North Shore break off Oahu, where surfers challenge waves up to 25 feet high, trying to tube the barrel without being ground into fish food on a shallow and unforgiving coral reef. Successful big-wave riding promises the utmost in exhilaration and satisfaction, but it is a precarious sport, reserved for a handful of pros that have mastered the discipline, tenacity, and precaution necessary to paddle out and make it back in one piece. Several people die every season.
Turns out, pro dealer operations in Hawaii are not much different. Tied to both the Asian and U.S. economies, often reliant on military spending, and dependent on shipping lanes 2,400 miles long, the Hawaiian LBM supplier must master logistics, operations, and business diversification to have any shot at grabbing a piece of the state's 4,000 annual housing starts. One dealer that does is Honsador Holdings, the three-division power-house consisting of Honsador Lumber, Ariel Truss, and Honolulu Wood Treating (HWT) that pulled in $165 million in 2005 sales from nine locations across the islands of Kauai, Maui, Oahu, and the Big Island of Hawaii.
There's pipeline talk aplenty among the Honsador crew, but big-wave riders never come up in conversations. Instead, they focus on how to secure tomorrow's loads from a supply chain with multi-week lead times.
Like any U.S. pro dealer, Honsador salespeople and purchasing agents can pick up the phone and place orders with mills and manufacturers across the country. But then things get tricky.
First, most products it orders don't go straight from the factory to Honolulu. Instead they are sent to a Honsador yard in Portland, Ore., where they are consolidated in containers for steamship transport or allocated to barges. Those vessels then sail halfway across the Pacific to Honsador's dockside offloading yard near Honolulu. Any dimension or load-bearing lumber must then be hauled to the HWT facility about a mile away and treated for protection against Formosan termites. After that, material staying on Oahu (Honolulu's island) takes a short trip to Honsador Lumber's yard in Kapolei, while products for Maui, Kauai, or the Big Island must be reconsolidated and loaded onto inter-island barges. In all, the Portland-to-Oahu transit takes five to seven days by container ship, 10 to 14 days by barge, not counting time in port. Inter-island barges sail daily and tack an additional one to two days onto the pipeline.
“If you are going to be successful in Hawaii, logistics management of the supply pipeline is key,” says Honsador CEO Carl Liliequist. “If you are out of something, or fail to meet a commitment, you can't fix it in a day or two by going to some other supplier or wholesaler. We are the same distance from the mainland as Los Angeles is from New York. You're talking a whole country of distance.”
Since the early-1990s, Honsador (founded in 1935 as HONolulu SAsh and DOoR) has been singularly adept among its market peers in managing those logistics, and the company's success has created significant waves leading to both new opportunities and new ownership. Gone is long-time owner-operator Jim Pappas, by all accounts a savvy business operator and manager, and in is Key Principal Partners (KPP), a private equity firm in Cleveland that purchased the business in 2004 and is embracing the Pappas tradition of corporate reinvestment.
In particular, branch managers are no longer islands unto themselves and have been charged with taking a larger share of financial performance responsibility. Truss operations have been revamped, and the company moved to the Activant Falcon system in October, replacing four separate legacy computer systems. Over the next decade, the military is rebuilding some 12,000 housing units, and Honsador is intent on expansion, particularly by making acquisitions and entering into new service areas.
The Big Kahuna
Corporate reinvestment by KPP figures large into maintaining the service status quo and continuing to explore growth opportunities on both the scale and value-added fronts. Pro dealer shops run by AMFAC, A&B, and Mid Pac dominated the Hawaiian market throughout the '80s, but their singular focus on high-dollar, high-margin repair and remodel and custom home builders coupled with the arrival of the big boxes drastically changed the competitive landscape on the islands. Those suppliers were squeezed out of business while Honsador, with a commodity and treated lumber base and a customer share balanced among custom, production, and affordable housing (see “Project-Minded,” right) began to grow.
“While we are thrilled to acquire the fantastic company that Jim Pappas has constructed, our challenge now is to continue to grow the breadth and quality of services the company can provide to professional builders in the islands,” said KPP principal Greg Davis after the 2004 acquisition. According to old-school employees and recently tapped corporate management like Liliequist and CFO Drew Neathery, that's exactly what the Cleveland firm has done. “There are a lot of things about the company that don't need to be changed,” says Neathery, a KPP alum who came to Honsador in January 2005. “Hopefully we have set the stage and some strategies for moving forward. This company still has a family feel, and it still needs to be a local company, not one with an image of being owned by investors that came in and are treating employees [badly] or running the company into the ground.”