This article is a rebuttal to Don Magruder's recent article regarding his perceptions of the inherent dangers of bypassing steps in the building products supply chain. The gist of Mr. Magruder's article is that there is an established order in the current supply chain and players who disrupt this order are doomed to failure, or will, at the very least, be "scorned" by those entities that have been sidestepped. Mr. Magruder, the CEO of a Florida building products dealer, cites local national dealers who have chosen to offer installed sales and a trim manufacturer who has "sold around: his company. He warns that "those who ignore the next rung of the (supply) chain just might find themselves falling off the ladder."
This "don't tread on me" warning to those that would consider breaking the established order of existing supply chain rings hollow. Mr. Magruder and other distributors and dealers in the building materials supply chain do not understand the message behind such supply chain maneuvers. When a dealer decides to get into installed sales, it's not usually a middle-of-the-night revelation. Someone (a builder, perhaps) has asked it to provide a service that is not being executed well in the supply chain. Likewise, the trim manufacturer that Mr. Magruder refers to is clearly not satisfied with the value-add being offered by Mr. Magruder's company and has nothing to lose by selling around its former customer.
These events serve as a wake-up call to the offended parties and the message is simple: Create value in the supply chain or be eliminated!
All of us in the building products supply chain--big and small players alike--need to understand that the building products supply chain is a bit anachronistic. Other industries have streamlined their supply chains, and it's inevitable that building products will be streamlined as well. All it takes is a service void and a bit of moxie and big changes come about (reference the emergence of the one-stepper).
The idea of taking steps out of the building products supply chain is not new. Most big builders I know want to buy lumber from the tree. But seriously, the power brokers of the building products supply chain--the manufacturers and big/medium sized remodelers and builders--are both looking for ways to reduce the landed cost of products without suffering service setbacks.
You only need to look at Ryan Homes (NVR) to see how a focused effort to eliminate steps in the supply chain can pay off big. NVR created its own internal capability at a point when it felt it they could do a better job buying and assembling building components internally than what was being provided by local third parties. NVR's Building Products Operation supplies its homebuilding operation with structural building components and stands as a harbinger of things to come if distributors and dealers can't fulfill the needs of customers downstream in the building products supply chain.
But before we write the obituary on the supply chain intermediaries, a few supply chain facts need to be laid bare. First, realize that both dealers and distributors can and do add value in the building products supply chain. Break bulk, remanufacturing, market risk management, and last-mile delivery are just a few of the value-added services offered by distributors and dealers.
Second, most manufacturers and builders don't want to replicate something in the supply chain that already exists. While eliminating a supply chain step sounds like a no-brainer, the entity eliminating the supply chain step must assume the risks and costs of the activities that the eliminated player was burdened with. At timies, it may be worth it.
Lastly, taking the step to circumvent the established supply chain is a bit risky. Alienation of the existing customer base and challenges with new product marketing development are a couple of inherent risks. But, as mentioned before, if a step in the supply chain is not providing value, there's not much to lose.
So what is it that distributors and dealers can do to reverse the temptation to eliminate them from the supply chain? The answer is simple yet complex: Develop a firm and unbiased knowledge of how you add value in your marketplace. Spend some time internally and externally understanding what it is you do that vendors and customer's value. Talk with parties both upstream and downstream in the supply chain. Understand what value they want you to provide.
You might be surprised. Even if it's plain old logistics, you can make a good living at it--UPS and Federal Express certainly do. And don't let historical ways and means of the building products supply chain direct your company's future. When you define your company's value add--and it's probably market specific--leverage it! Find the customers and vendors that "value your value" and deliver on it!
Rod MacKenzie has worked more than 31 years building products industry. Currently, he is the owner of Green Building Resources, an Atlanta area distributor of green building products. Contact him at [email protected].
