The Supplier and Trade Tip-Off

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This builder asked its suppliers and trades to help it identify waste in processes, materials and labor using a structured process. The message from the builder was "Help me preserve my margins without cutting yours." The effort resulted in the identification of more than $1 million in savings.

March 01, 2007

I am spending a week with a local builder in a major market. In the eight years I've known this company, it has tripled its staff yet increased its sales by a factor of five. It is now a major player with a gorgeous headquarters and a first-class design center. It has won a top national building award. It has an exceptional culture and wonderful, intensely loyal employees. Its supplier/trade relationships are equally strong.

This home builder is one of the most efficient I have observed in my many years in the business, with a build time of 68 days. It builds a competent, simple product without a lot of options. In short, it isn't the type of company where you find abundant waste that can be readily cut. By typical builder standards, this company is "skinny." Its margins are strong — it had double digit growth in 2006 and now it is buying land at a big discount as the regionals and nationals retreat in their market. It does a lot of things right.

I completed two days of intense meetings with 18 of the firm's key suppliers and trades, one hour at a time, looking for money. No, the builder did not take the easy way out and issue a "demand letter" saying "Cut 10 percent or else." Instead, the builder asked its suppliers and trades to help it identify waste in processes, materials and labor using a structured process. The message from the builder was "Help me preserve my margins without cutting yours."

The result? In two days, the company identified more than $1 million in savings. Nearly half of the supplier/trade proposals had to be marked "TBD" — there just wasn't enough time or information to estimate a savings yet. The reactions of the suppliers and trades were positive across the board, many expressing sincere appreciation for the builder and the approach, not just for this initiative, but for how the builder does business every day.

Will this company actually save $1 million? It'll do much better than that. It came up with additional ideas that will produce more results. It has also begun a new tradition of involving suppliers and trades more often that will continue to generate improvements. This is what partnership is all about.

So here's the challenge. Take your company to the mirror and give it a cold hard stare. If a builder this efficient could find that much waste in just two days, how much do you think is lurking around your shop? For 99 percent of you, it's more. Way more.

Can you get at it? Maybe; this company has some things yours might not. They have exceptional leadership. They have guts. They have a process, and they have unusually strong supplier and trade relationships — strong enough that they truly want to help this builder succeed in tough times, not out of fear, but out of respect and a genuine desire to help.

You'd better get started. This builder might be in your market and people have long memories. When the markets turn around and you're out there competing for the best suppliers and trades, who do you think is going to get them?


Acknowledgements
Scott Sedam is president of TrueNorth Development, a nationwide consulting and training firm focused on quality, process improvement and organizational development. He can be reached at scott@truen.com.


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