Building Strategic Alliances

For the past three months, I have written extensively on how builders are messing up the supply chain.

By Scott Sedam | October 31, 2002


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For the past three months, I have written extensively on how builders are messing up the supply chain. At Professional Builder's just-completed Benchmark conference, a couple of builder friends corralled me and demanded equal time. I had beaten up builders pretty thoroughly, they suggested, so how about writing a column on how suppliers and trades aggravate the situation? Why not talk about what those guys need to do to make the process work? These two builders wanted something they could hand to their suppliers and trades that provides direction about roles and responsibilities to the builder. "OK," I said. "I can do that."

Because it is, after all, a two-way street. I have certainly seen a lot of good, bad and ugly on the supply side, too. Suppliers and trades routinely complain that low bid is the only real concern of most builders, yet how much effort do they make to change that situation? How often do suppliers and trades come to builders with a complete package of easily understood, easy-to-utilize benefits along with a fair price? Not often, according to builders. That has to change.

One builder at Benchmark, a friend who loves to antagonize me, suggested I write three columns on the importance of initial price. He was serious. Now, to antagonize him in return, I will suggest that perhaps he wasn't listening. In the past three columns, I tried to hammer home that a major benefit of determining total cost and highest value is to reduce the impact of the initial price.

Let's think about this from another angle. Every builder can point to a salesperson who manages to hold prices yet gets people to buy and buy gladly. Then there are salespeople terminally addicted to discounts and giveaways. They cannot seem to sell a house without knocking down the price or giving away a refrigerator. How do the successful ones pull it off? I suggest they are selling on total cost and total value, not initial price. Consider the following example.

How does our top salesperson get hesitant potential home buyers over the sticker-shock price of the new home they want? He talks about the tax deduction they will get. He talks about how much they will save on utilities in this energy-efficient home. Perhaps they will be closer to work and social activities, saving money on auto expenses. He explains that they will not be spending money but rather investing in a property that will bring return. He talks about the quality of construction, the prime location of the community, the lifestyle they are choosing, the great neighbors, good schools, access to health care, etc., etc. He talks about and demonstrates anything that reduces the relative impact of that initial price. When he's done, they won't mind paying a few thousand more than they would in another community. They will make the smart decision (obviously) and buy at the price the builder needs to prosper. They bought because our salesperson did his job.

Beyond the Numbers
Should it be any different for suppliers and trades? But how many respond to a bid request by just sending in the numbers? If that's all there is, then that's all you get. And many supplier personnel don't want to go to the trouble to go into the field and really get to know the builder's business.

A couple of years back, I had a client building about 600 homes a year, many of them higher-end houses. His annual light-fixture bill ran to six figures, and he was buying those fixtures from nine suppliers sold through four distributors! We can criticize his purchasing manager, but first I would ask what's wrong with the big lighting companies. I told a regional manager from one manufacturer about this builder and asked, "Could you supply everything he needs for the 600 homes?" His answer was, "Of course!" So I gave him the builder's phone number and told the head of purchasing to expect a call. All the builder got was a catalog (which he already had) and a price sheet.

That's not just uncreative - that-s insane. If I-m that regional manager, I-m down there the next week with the appropriate field representative and presenting exactly how we can save the builder money, time and head-aches in a variety of creative ways, while providing quality and giving the builder's customers great choices. Total cost - highest value. Is that so hard?

All the supplier did was toss the builder a price. Nothing else in the equation. And that earns the only logical (and predictable) response. "Lower it!" says purchasing, and why not? It always has worked before, and our purchasing manager has nothing else to go on. But if I'm a smart supplier or trade, I take a better approach. I provide a price that's in the ballpark, but I'm not worried if it's a little higher than other bidders' because my firm does so much more for the builder than those other guys, and I'm going to make damned sure the builder knows it - including those purchasing guys wearing blinders. Among other things ...

  • I'm going to provide data (proof) that our quality is better - less rework during construction, less warranty service after close. And if there is warranty work, we do it better, faster and cleaner and keep the homeowners happy. I can prove that because we have a little postcard or door-hanger survey from our customers that we collect, tally and report. Of course, the owner sees this!
  • Our guys always leave the sites clean.
  • We dont waste materials.
  • We use the best stuff.
  • Our crews are excellent, and our best customers get our top crews. They are trained. They know not only how to do the job, but also how to talk to customers or Realtors who might wander through.
  • We participate in every training session the builder offers and bug him for more.
  • We offer periodic training to the builder's people on our product or our trade, how it works and how the builder can help us do our best job.
  • If the builder wants help with a community service project, we are there.
  • We know the scopes and live by them.
  • We are patient and help train new superintendents.
  • We go out of our way to work cooperatively with other trades. We don't damage other people's work, and if by chance we do, we own up to it promptly, fix it or arrange for it to be fixed.
  • We deliver materials on time.
  • We never substitute materials without specific agreement from the builder. If 200 2x4x9s were ordered, I'm not going to send 10s. We won't ever short the builder.
  • We won't get lazy and forget to cover bathtubs. We won't let mortar fall on window sash. We won't water down paint.
  • We do our inspections ourselves and prove we do them, freeing superintendents to watch those other guys. We dont have back-charge issues because the builder knows we don't do the kinds of things that lead to back charges. We do what we say, and we do the right thing.

Building Bridges
Am I dreaming? No, because plenty of suppliers and trades think that way. Sure, it's nowhere near the majority, but you don't need the majority. You need just enough to do your work. Chances are you know and use one or two. What you need are 15 or 20.

Can we bridge this gap between builders, suppliers and trades? At the end of the day, it's a classic chicken-and-egg thing. Which came first? It doesn't matter. The industry is mired in a low-bid, low-price, non-value-added mentality, and we have to change it.

This is what needs to happen with total-cost criteria. These criteria always must be used. Routinely. We wouldn't think of considering a supplier or trade without evaluating based on all the criteria. On the builder side, if the other criteria aren't met, we won't be swayed for a moment with a low price. On the supplier/trade side, a builder with no interest in any criteria beyond low price would not be considered. Just imagine the impact.

In the end, the only way this will work is for all parties to take responsibility for the transformation. It can't be just a builder initiative or a supplier/trade initiative. It has to be an industry initiative.


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