Although the role of the lumber and building materials supplier is ingrained in the construction supply chain, if pro dealers fail to implement new competitive strategies, their profits will suffer long-term. To help you add value on a strategic level, there are three business models that, when rigorously applied, can enhance business success and value.
Role #1: “Blanket” the customer's needs. In this case, the dealer provides a wide assortment of products to blanket a target customer base's needs. The assortment can be relatively shallow, as it is particularly tuned to the needs of a well-defined market segment, such as medium to large framers or contractors, fast-growing regional builders, production builders, or other niche segments. This works because of the one-stop-shop concept. It's very important to select a large enough segment to achieve profit and growth objectives, but to select just one. Some of the largest distributors in home building have adopted this strategy, but sometimes with too many segments on the radar screen.
Role #2: Specialize in a specific family of products. This approach is suitable for product sectors containing a large variety of items. In contrast to the first role, product specialists sell a deep assortment of the chosen product family to a variety of different customer segments. Plumbing, electrical, and flooring are good examples. Services, such as installation and design solutions, may be a natural extension of the business, as in the flooring category. Because there are so many product and brand choices and customer satisfaction is partly determined by installation, this strategy ensures a higher level of end-to-end quality for the customer.
Each of these options offers a distinctive value proposition and requires a different set of collective skills (see “Value Propositions,” above). Many dealers and distributors pursue a “one size fits no one” strategy; namely, they offer all customer segments the same products or they fail to innovate service offerings (with or without the Internet) that would command greater value, and thus premium margins.
On the other hand, adopting and implementing one of the above focused roles will provide a distributor or dealer with a sustainable return (i.e., at least equal to its cost of capital). But these approaches are only the beginning. To become a leading player, which will require significant funding to support skills and capabilities development, it is necessary to generate superior profitability. To do so, a distributor or dealer will have to supplement its basic role with profitable value-added services, including Internet-based offerings that enable above-average pricing and new revenue sources. Think of the strategies herein as your first steps on the path to more profits, and soon it will be time to take off running. —Luis F. Solis is president/managing partner of Boulder, Colo.–based Symbius Corp., a leading supply chain management consulting firm for the home building industry. www.symbius.com.
