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This article first appeared in the PB February 2001 issue of Pro Builder.

What in the world is up with e-commerce in the home building industry?

The easy answer is "a whole lot," as new dot-coms seem to pop up with the frequency of mushrooms after a spring rain. "Too much!" might also work, as builders’ eyes glaze over from trying to evaluate which of the competing and conflicting dot-com business models really have a chance to succeed in the home building industry. "Not enough" would also be accurate, especially on the business-to-business side, since no one seems able to deliver - yet - on the promise of improving the way the industry builds houses.

To help you sort through the conflicting claims, hype and information overload, here’s our take on the Big Picture shaping up in early 2001. We’ll also give you an action plan to deal with evaluating all those dot-coms and finding the ones that may work for you.

State of the Nation
By now you’ve probably seen and heard the vision and hype of what the Internet could do for builders. On the business-to-business side, for instance, e-procurement of materials and products is projected to contain cost savings of 15 to 25 percent of the end price of a home.

Manufacturers and distributors using the Internet’s strong communications platform and accurate forecasting tools could, in time, move from the current "just in case" product inventory requirements to "just in time" delivery systems, potentially reducing inventory levels by 30 percent to 60 percent. The corresponding reduction in capital requirements could save the supply side of the housing industry between $1 billion and $2 billion a year.

Internet-based, centralized bidding, scheduling and management of trades could dramatically reduce cycle times. "We believe electronic scheduling and procurement of labor and materials could boost margins of the big public home builders by one to two percentage points through faster cycle times and reduced transaction and distribution costs," says Wall Street analyst John Stanley of UBS Warburg.

On the business-to-consumer side, the Internet can drive high quality potential customers from web sites right to builders’ model homes at costs much lower than current marketing methods. And by maintaining Internet communications with buyers, say the pundits, builders will eventually be able to create "customers for life" and sell them an ongoing stream of products and services that could expand a builder’s profit per home by 20 to 30 percent.

Reality Bytes
Now the reality. While the B-to-C side of this equation is already paying off, the B-to-B side is still a pipe dream, for a variety of reasons. The biggest may be that people of vision wrote the business plans for the early, grandiose, B-to-B dot-coms, without enough attention to the nitty-gritty details of how to make them actually work. And so far, none are working on more than pilot program levels.

Table 1: Market/Consumer Research Tools
Web Site/Company
Internet and desktop tools facilitate an in-depth understanding of critical market and product trends, from the market level to the subdivision level, including future developments. Provides insight into emerging trends. Offers analyses of economic and demographic factors impacting the supply and demand for housing. Provides important economic and demographic data, including school test scores, crime statistics, resale housing, etc. Data mining tools aid in the analysis of this information.
Includes shopper surveys, buyer surveys, buyer profiling and post-purchase satisfaction surveys. This type of information can be managed with data mining and customer relationship management (CRM) solutions.
Market Analysis / Data Mining
Helps make data actionable information. Answers the “so what” question. Provides means to distill data into an action plan.

"It’s true," says Peter Simons, Beazer Homes’ senior vice president of e-business development. "B-to-C is moving a lot faster than B-to-B. It’s a lot easier. There are a lot of devils in those details in B-to-B. It’s just a lot more complicated. The builders all have different (computer) systems, and many of the trades still have no systems at all. In the supply chain, back office integration is a huge nut to crack."

We shouldn’t be surprised by the early troubles of industry-wide e-commerce exchanges, says Chicago-based builder David Hill, chairman of privately-held Kimball Hill Homes. "Exchange models in all kinds of industries are not working," he says, "and a lot of those industries are much less fragmented than home building. The biggest entities in our business don’t touch $5 billion a year in revenue. That’s a big builder, but it’s a mid-sized company among the Fortune 500.

"In Chicago and Houston, can you imagine how many different lumber suppliers we deal with? By national standards, home building’s biggest buyers are small, and the sellers are tiny. And the supply chain changes from region to region, city to city, sometimes from one side of town to the other," says Hill.

The other news flash is that the technology to support industry exchanges really isn’t there yet, says Hill. "There’s so much ‘vaporware’ out there it isn’t funny. It’s really a four-year difference between vision and reality. If someone tells you he’s really got it, you can count on another four years before it’s actually there. That’s Dave Hill’s four-year rule."

Redmond, Wash.-based management consultant Bill Allen says most of the dot-coms in B-to-B see the world through rose-tinted glasses. "They’re trying to sell builders solutions based on best-case scenarios, in a world that is a lot more chaotic than that," he says. "And they don’t know enough about the business processes they’re trying to automate, or how those processes change from market to market. The way builders operate in Spokane is a lot different from the way business is done in Atlanta. The fact is, this industry is all local.

"The other thing they don’t realize is that many builders have never process-mapped their own organizations, much less those of suppliers and trades. They don’t even know the exact nature of their supply chains. Many builders have not mastered the complexity of integrated computerized operations within the company. To go beyond that and try to automate the entire supply chain for housing production is opening Pandora’s Box."

B-to-C Successes
Before you conclude that it’s OK to ignore e-commerce entirely and go back to sleep, you need to know that for every rapid-fire failure on the B-to-B side, there are probably a dozen successes in B-to-C.

"The portals are there," says Peter Simons. "You can get to customers. And more and more customers are going online. Over 50 percent of buyers are now doing at least some of the research for their buying decision online. In the auto industry, that number is now up to 80 percent, and we expect new homes to get to 80 percent very soon.

"We’re now in the third release of our web site," says Simons. "Our next step will be into truly interactive customer relationship management (CRM). That’s where we’ll move toward ‘customers for life’ by selling everything from moving services to ‘last mile’ technologies like cable TV, telephone and Internet access. We’ll have revenue sharing on all of that."

Along with Beazer, Toll Brothers and a few other big public builders, Del Webb is a leader in development of CRM systems. That makes sense since Del Webb’s customers in active adult communities spread across the Sun Belt are often snowbird empty nesters coming from thousands of miles away. The Internet provides easy access to customers - and their friends - in faraway places.

Table 2: Estimating
Web Site/Company
Project Estimator from
Saves time in the process. Allows consideration of company and industry benchmarks. Improves accuracy by capturing all foreseeable costs in budget estimates.

"We formed our e-business division last July," says Del Webb vp Tom Lucas, who heads the group. "At the time, the big buzz was supply chain management through companies like BuildNet, Buildscape, USBuild, etc. We figured that a lot needed to happen before any of that would be viable. We decided to go in-house and concentrate on B-to-C."

Del Webb now has a web site that links directly to its back-office database. Through the firm’s MyHomeStatus page, buyers all over the country can check the progress of construction on their houses. Coming soon, a page that will allow residents to e-mail customer service requests, directly linked to the back-office database. The customer service representative will be able to schedule trades to do the work right online.

"The Internet is a powerful sales and customer service tool," says Lucas. "We already find that people who visit our web site buy about twice as fast as those who walk into our models cold. About 15 percent of our web site visitors have hit the site more than 15 times. I don’t know if we’ll ever get to the point where people buy houses on the web without visiting at all. But clearly, the time will come when they do everything except kick the tires online."

Del Webb is already moving much of the option, upgrade and color selection process online. "Next will come lot selection," says Lucas, "and then we’ll do a digital contract offering."

The big, national, public home builders like Del Webb, Centex, Pulte, D.R. Horton, Kaufman & Broad and Beazer are each pumping millions of dollars every year into their own web-based initiatives, as well as hedging their bets on the various dot-coms by investing in two, three, or four B-to-B and B-to-C offerings.

"We’re working with through a national contract," says Peter Simons. "We’re getting a fair amount of leads from them. We’re also national with, and we’ve got regional deals with several other portals. We’re also doing banner ads on AOL (America Online) and Yahoo. We’re getting big responses on both."

This brings up an interesting point. It’s getting increasingly easy to find the big public builders online, and harder to find smaller, private, single-market builders at all. The question looms whether e-commerce investment will accelerate the trend toward consolidation in the housing industry, and make it even harder than it is today for private, single-market or regional production builders to compete.

Some analysts believe the Internet will eventually level the playing field and eliminate advantages associated with size. Small builders will look just like big ones on the portals through which the majority of consumers enter the e-marketplace for new homes.

Not so, says Wall Street’s John Stanley. "The big public builders are leading this charge with huge investments" he says. "Given their aggregate critical mass, I’ve got to believe the solutions that finally succeed will cater to big builders’ needs. Small builder solutions face a tougher road in aggregating enough demand to create critical mass. I expect e-business to widen the competitive gap between large and small builders, even though land and financing are probably more important than e-commerce."

In the B-to-C arena, the investments of big, public builders may already be costing smaller builders market share. "It’s hard to find small builders on the web. You have to know where to look," says Beazer’s Simons. "Most of the housing markets are soft now. Just look at the trends in permits and housing starts. But the big builders are still really cranking. We’re taking market share. I think that’s because traffic and leads from the web sites are way up. Go below the top 20 builders and the quality of the web sites drops off dramatically.

"There are some good small builder sites, but not many," says Simons. "And interactivity is really expensive. When that becomes the norm, how many players will there be? It already takes at least $2 million a year to keep a good web site going."

By definition, the Internet is everywhere. By inference, that makes it a national medium, says Simons. "It really helps to recover the costs when you have communities all over the country to pump web traffic into," he says. "There may not be enough buyers in a single market to support the costs."

However, just as many industry insiders come down on the other side. "The Internet makes small and large builders equal," says California management consultant Doug Wilson. "My gut instinct is that when this plays out, the little guys will get access to even the B-to-B supply chain initiatives. Those supply chains are so different from market to market that I think they’ll have to be organized locally, not nationally. And the only way to get enough aggregated buying power will be to open them to all the builders. On the B-to-C side, the small builders may have to pay a little higher rate for space on the portal, but that will never be as costly as the overhead big builders have to pay to run a national company."

The big play-for-pay e-commerce exchanges are already being squeezed on the trades management front by in-house, Internet-based initiatives in many companies. John Wieland, The Drees Company and several other large private builders are pumping as much investment into this as the big public firms like Pulte and Del Webb.

If a company has strong market share even in just one market, it probably has enough clout to require its trade contractors to log onto its own web site and use a password to access a centralized scheduling system like Wieland’s, which is already in operation in Atlanta, or "DreesBuild," which the Cincinnati-based Giant is now testing in a pilot program.

"We think its going to be less expensive to create our own platform and require our vendors to use it than to run our transactions through another middleman charging fees for Internet connectivity," says Drees president David Drees. "The scheduling system will be the backbone of our approach. Once it’s in place, we’ll provide solid, accurate, timely information to our trades every day. Eventually, it will be fairly easy to add other information like house plans, purchase orders and construction specifications online."

That will work at least until a better, national solution emerges. Few builders have enough market share anywhere to dictate that trades use their site instead of a better, national web site where they can schedule work for all their builder clients rather than just one.

Of all the dot-com B-to-B initiatives, the one generating the most interest today is, which recently dropped the ".com" from its name because of industry skepticism. USBuild is also the most radical because it involves creating a whole new supply chain for products big builders buy in large quantities from major manufacturers. Pulte is a major player in the pilot project in Denver, along with local private Giant Village Homes.

The grand vision is that large builders will order products for a home with one click and have them delivered to the job site at just the right time with state-of-the-art logistics provided by Penske, the transportation partner in the venture. Demand from several large builders in a market would be aggregated, picked up from the manufacturer by USBuild trucks, taken to a regional fulfillment center and broken down into "house packs" for deliver to the job site on a precise schedule.

The strategy would allow builders to unbundle labor from materials, buying directly in bulk rather than piecemeal through trade contractors.

Right now, USBuild is still a long way from its grand vision, but Pulte is excited about the success of the pilot program in Denver. "It’s working well, and we’ll take it into three production communities in Denver this winter," says Pulte’s e-business vp Alan Laing. "The logistics of USBuild are actually the easy part. Penske is very good at moving the products where they need to go. The hard part is the one all the supply chain initiatives are struggling with - the bill of materials, Internet ordering part."

Pulte already has its own in-house, Internet-based scheduling system up and running in 20 cities. "We’re all over that one," says Laing. "Pure production scheduling is one of the easier things to do, and could be one of the most valuable Internet applications. Today, most supers have a clipboard and they’re hacking data into a PC every night. What doesn’t exist yet is the order configurator and bill of materials level detail to drive the full supply chain.

"I think you’ll continue to see a lot of pilot programs this year on a number of the more ambitious B-to-B contenders. USBuild will get broader support. Some of the other national builders will be involved this year. You’ll also see builders developing a lot of their own applications because they can’t find what they want in the public domain."

Pulte will continue to expand its in-house scheduling and construction management system. "The centerpiece of the portal is the scheduling engine," says Laing. "That brings the trades to the web site. The next generation will be to integrate the scheduling system with the use of wireless input (Palm Pilots) so that as soon as the work is done, the trades get paid."

How long will it take to get some form of real, Internet-based, integrated supply chain management up and running? "It won’t be in a year, but it won’t take ten. Bill Gates said nothing will happen as soon as people think, but everything will happen faster than anyone thinks!"

Action Plan
Given that, take some time to sit down, relax and take a deep breath. Nothing is happening as fast as many would have you believe, although fundamental changes in the way builders operate their businesses are indeed inevitable.

There’s no danger of missing a boat that will depart and never return. Rather, there are many ships and frequent departures to margin-enhancing destinations. But before you go anywhere, the most important step is to plan your itinerary carefully.

Similar to the way computerization forced changes in builder operations 20 years ago, Internet-based technologies will change the way you do things. You can’t simply drop new technology on top of existing business processes. The first question to ask is, "Do I know every detail of how we do business today?"

Far too few builders have process-mapped their own organizations, much less the overlapping operations of trades, suppliers and manufacturers who play critical roles in the actual building of a home. You cannot enhance what you don’t fully understand.

Do the process-mapping. Look carefully at all your processes and the systems that support them. Then look for ways Internet-based technologies can help, either by supporting, changing or replacing current processes and systems. Make no mistake about it, Internet-based technologies will eventually drive business process re-engineering in the home building industry.

To help your deliberations, here’s a basic framework to follow. We have included tables listing relevant web sites supporting each area of builder business operations. We don’t pretend to list them all, since new dot-coms seem to sprout every day as others shut down. But if you explore the sites in our tables, we believe you’ll have a good feel for the direction web-based technology is heading.

Process Evaluation
Although it’s time-consuming hard work, often accompanied by painful revelations, improvement can’t happen without meticulous review and assessment of every business process and the paper trail it produces.

A market-driven strategic plan (see model on this page) must include flexibility to seize emerging opportunities and circumvent potholes as the market changes. Planning never stops. The goal here is to find opportunities to improve every aspect of the business. Only then can you make smart decisions about applying web-based technologies.

While business processes and systems will change to accommodate the new technologies, the underlying fundamentals of attracting and serving customers should never change. Customers must drive the technology, not the other way around. Know who they are, what they want and how much they are willing and able to pay.

Fortunately, the Internet can play a major role in enhancing your ability to do market and consumer research. Technology is no substitute for experience in evaluating data, but the Internet is a big boon to gathering it. See Table I on page 62 for some of the web sites that may help.

Process Improvement
Product development and design is not the high water mark of the Internet’s impact on home building, but keep your ears open for some new buzzwords, such as "collaborative product commerce" (CPC), "design collaboration" and "collaborative commerce." Solutions in this category allow multiple users such as land planners, architects, research consultants and financial analysts to participate in the design process via the Internet.

Check out and, early providers of Internet-based product design tools to enhance the exchange of information among design team members.

Estimating is another step in the production process ripe with potential for the Internet to impact profitability. Several tools are already in place and more are on the way. A list is shown in Table 2 on page 65.

Marketing is where the game is really won or lost. It is not a single process with a defined start and stop date. Rather, elements of marketing are woven through every step in the home building process. It’s the key link from strategic planning to an actual product offering in the marketplace. Marketing people keep the customer in the driver’s seat on major decisions, synthesizing planning and research to create a viable product concept.

Tactical marketing creates the "face" you present to consumers. Several Internet offerings are now available to assist marketing strategies and initiatives. See Table 3 on page 65.

Right now, sales is the mother lode of the Internet’s impact on home building, where a myriad of B-to-C web sites - including those of individual builders - offer huge potential for savvy practitioners to grab market share from those who are behind on the learning curve. This is the one area where there really is no time to dally. If you’re not already engaged in business-to-consumer Internet-based initiatives, get moving fast.

The new technologies allow marketing and sales processes to be integrated as never before. Web-based systems and desktop applications allow sales people to gather market intelligence and funnel it back to management and marketing in real time. Salespeople are also picking up the "information exhaust" from web surfers and model home visitors (via registration cards, online information requests, etc.) and using it to markedly improve "be-backs" and conversion rates.

A number of web sites offer the ability to generate leads and use sales management tools to monitor traffic patterns and follow up with prospects. Another possibility is outsourcing the whole sales effort to large real estate firms that specialize in the sale of newly constructed homes. These offerings are tailored for small and mid-sized production builders. See Table 4 on page 66.

Pre-construction processes are another area of heavy dot-com activity because of the opportunities for cost savings. You can now gather crucial project information, communicate with field employees, solicit and schedule trades and apply for and receive governmental approvals via the Internet. See Table 5 on page 68.

Purchasing is the process that has captured most of the dot-com headlines over the past 18 months, but not much of the news was positive in the second half of 2000. With promises of enormous cost savings, numerous dot-coms clamor for attention and dwindling investment dollars for e-procurement tools. The value proposition usually begins with improved communications, moves to online transactions and ends with just-in-time deliveries.

Some of the initiatives underway make no attempt to alter the supply chain, concentrating instead on automating existing relationships. Others seek to restructure the chain or build an entirely new one. While there’s a lot of buzz on this game, and the big, national builders have thrown huge investments into the pot, the best strategy seems to be the one getting the most play right now - wait and see.

Many builders have processes in place now that allow purchasing and marketing functions to work together in the product selection process. This assures that the voice of the customer is heard loud and clear over the din of cost concerns. Value and increased profits flow from understanding consumers’ perceptions. Keep the customer on the throne. And wait for signs that someone can actually deliver what’s promised in supply chain management. It hasn’t happened yet. See Table 6 on page 71 for a list of Internet-based product procurement and purchasing tools

How can you build houses better and faster? Improving communication with your trade contractors is a great start. It may have more potential for cost savings than any e-procurement models that tout lower product and materials prices. Better project management can also save time and heighten customer satisfaction.

There are a plethora of dot-coms offering scheduling and project management services. But many builders are now working on in-house web-based solutions. See Table 7 on page 72.

With customer satisfaction firmly in place as priority number one, closing is another process with lots of potential for Internet-based technology impacts. The Internet affords excellent opportunities to bring more happy customers to the closing table through better communication and value-added services leading up to that point and beyond.

The portion of the cycle between contract and closing provides a huge opportunity to deliver stellar customer service. Buyers are often frustrated by their builder’s seeming unwillingness to keep them apprised and educated about the progress of their new home. Many builders are now using their own web sites to establish and maintain communication with customers throughout the home buying process.

For some ideas on how to do it right, check out Beazer Homes’ new initiative. Del Webb’s is also due online soon.

Service and warranty are the final pieces to the puzzle. With many of the big, national builders now courting "customers for life" with initiatives that seek an ongoing revenue stream, it is imperative for them to keep people happy. Look for that to push the entire industry toward higher levels of warranty service. The "after market" the nationals seek includes sale of home insurance, pest control, home maintenance, remodeling, refinancing and even furnishings.

Currently, there are only a few warranty and customer service tools offered on the Internet, but more are on the horizon. See Table 8 below.

While 2001 shapes up as a year to carefully assess the progress of B-to-B dot-coms such as USBuild, Buzz-saw, Buildpoint and Channelinx, this is not a time to sit on the sidelines in B-to-C. Chances are, you’re already losing new home shopping traffic to the big public builders with the best web sites.

Check out everything the big boys are doing. Hit their web sites. Look for their presence on the major B-to-C portals. Pay special attention to the national builders you go head-to-head against, but don’t ignore the e-commerce leaders like Beazer, Pulte and Del Webb even if you don’t compete with them.

Finally, actively seek ways to get into the B-to-C game on as many fronts as possible. Doug Wilson may be right about the Internet eventually turning into a leveler of the competitive playing field, but that won’t happen until large numbers of small and mid-sized builders show up in the e-commerce marketplace and demand solutions to fit their operations. Otherwise, it’s likely to be Peter Simons who turns out to be Carnack the Magnificent.

Additional research was provided by Andrea K. Abkarianss, a Phoenix-based consultant.

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