9 Basic Tenets of Purchasing for Builders

Measuring the lowest total cost of operations and counting every dollar, no matter who it goes to initially, are among the key tenets of purchasing. But there are more 

By Scott Sedam, Contributing Editor | July 19, 2011
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What follows are the things I hear from senior purchasing and operating managers in the best companies, the ones who are growing and making good margins even in this lousy market. These represent basic tenets of purchasing that a builder must practice and internalize that enable lowest total cost:

  1. Initial bid price is very important, but is just one of many factors we consider in choosing and maintaining supplier and trade relationships. We operate by defining and measuring lowest total cost of operations. Using bid price alone is fiscally and operationally irresponsible.
  2. A preeminent goal is to help our suppliers and trade contractors become more successful. We do this because it helps us become more profitable.
  3. A dollar saved is a dollar saved, and that counts, no matter who it goes to initially. If we show no interest or reject an improvement that generates greater margin for our suppliers and trades, we will find far less for ourselves.
  4. We have to harness the brainpower of all contributors. For each of our people there are at least 20 others in our supplier and trade base who supply labor and materials for our homes, only a fraction of which are the managers.
  5. Frequent mass-bidding means our suppliers and trades simply cannot take the time to do good takeoffs and bid effectively. The result is the exact opposite of what we intended.
  6. The only way to get the bids right and do apples-to-apples comparison is to get the plans and specifications right, in detail, up front. Any money spent there pays 10 times in execution.
  7. We do our own takeoffs, then sit down with our suppliers and trades and compare. The numbers virtually always get better, not by beating them down, but by dealing with accurate quantities, the right products, and using preferred methods.
  8. We find the very best suppliers and trades by total cost, build solid relationships, and get them involved all the way back in the design process, then every step of the way.
  9. We continually evaluate our suppliers and trades and give them feedback via our total cost model. This has required much more discipline than we had imagined.

 

Read Sedam's full article on the "New Rules of Purchasing."

President

Scott Sedam is president of TrueNorth Development, a consulting and training firm that works with builders to improve products, process, and profits. A senior contributing editor to Professional Builder, Scott has written award-winning commentary on all aspects of the business of home building and won the 2015 Jesse H. Neal Award, business journalism's most prestigious prize, for his commentary in Pro Builder. Scott invites you to join TrueNorth's LeanBuilding Group at linkedin.com and welcomes your feedback at scott@truen.com or 248.446.1275.

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