By Roberta Maynard. With closings of 3,200 units this year, Morrison Homes can't be counted in the ranks of mega builders. And when it comes to product purchasing, its size has not been a huge asset, acknowledges Morrison's head of purchasing and construction, Greg Lorenzetti.
"We call ourselves a tweener," he says. "We're a big builder, but we don't have any great strength in any one city. We're not an 800-pound gorilla."
One of Morrison's missions is to change that. The growing company has fixed an eye on gaining purchasing clout. While increasing production volume, the Atlanta-based builder has taken steps to improve efficiency in two ways: through technology and through purchasing consolidation.
On the consolidation side, a goal of the company for 2003 is to reduce the number of manufacturers it works with. "As we grow to 8,000 homes, we're going to reduce our HVAC partnerships, for example, from eight to five or six. The next year, we'll go to three or four. That's how we'll gain efficiency," says Lorenzetti, who came to Morrison from Ryland Homes eight years ago with CEO Stu Cline. "How do you use your size? Increase your purchasing power," Morrison says, noting that downsizing suppliers does not mean regional players will be squeezed out.
A key piece of Morrison's plan is simply to pay more attention to the purchasing function. Compared with conventional manufacturers, the resources most home builders dedicate to the purchasing arena is paltry, explains Lorenzetti. Moreover, purchasing products for new home construction is an increasingly complex process, due to such factors as increased use of rebates. Lorenzetti's staff was spending about a third of its time working on supply chain issues.
To address this, the company created vice presidents of purchasing roles in nine of its 11 divisions last year. Every quarter, the VPs meet to discuss such issues as service, quality, distribution, and vendor consolidation. And they compare prices for items in different regions with an eye toward figuring out why a faucet should cost the company 20 percent more in Denver than it does in Dallas.
Lorenzetti's staff keeps track of the company's purchases with a "very elaborate" spread sheet. That, along with Morrison's new integrated software, developed with SAP, is helping the builder create efficiencies, not only within its operation, but also with its trade partners. Tech Solutions
Four years in the planning, Morrison's SAP-based back office protocol debuted in its Atlanta division last summer. This fall, it's being rolled out in Florida, where the builder aims to gain market share.
During the protocol's development, the company spent a lot of time blueprinting processes and looking for best practices in every discipline, explains Gregg Goldenberg, vice president in charge of the project, which the company calls SeQuel. One of the most critical issues, he says, was to eliminate redundancies while linking sales orders to purchase orders to vendors and trades. Purchase orders, now just-in-time, are all electronic.
A lot of the heavy lifting was on the data preparation and training side. Morrison is setting up trade councils to help train its contractors' partners and, where necessary, to update equipment to run the software. Every option is loaded into the system, which prompts vendors when to order materials. The days of sending mass faxes to all vendors are nearly gone, says Goldenberg. And, in theory, so are the days of trade contractors driving around inspecting job sites to determine whether they're ready for the next step. "It really raises the level of discipline in the operation," he says. The $20 million dollar investment will pay for itself, according to Lorenzetti.
The Web-based system is driven by the superintendents' schedule. Like other systems, Morrison supers use hand-helds to send and receive information in real time. Having found wireless applications less than dependable in the field, Morrison opted instead for a wired system. Supers link up at the jobsite trailer.
Morrison already has benefited from its regional purchasing contracts, and as the company sets its sights on being among the top 10 builders in each of its markets, the terms will only get better.
"We've made a lot of deals with manufacturers," says Lorenzetti. "It's really been apparent in the last year to 18 months that manufacturers really want to partner. I've seen a gung-ho attitude by companies that want to align themselves with builders producing more than 2,000 homes yearly."
Still, he says, the benefit of being bigger is clear, especially where rebates are concerned. "I'm not going to get the same rebate as a 15,000-unit builder. I know what the [cutoff points] are as you increase in volume. That's the only signpost I get," he says.
"In the past two years, we've absolutely become more demanding [in regard to purchasing]," says Lorenzetti. "That's simply because our customer is more demanding." The search for efficiency is showing up at both ends of the supply chain, he says. Many manufacturers have done a "great job of taking the costs out of products," while builders also have realized efficiencies. Lorenzetti says he believes the remaining area of challenge is the middle ground — the distribution process.
"Everybody's looking for the answer," he says. "As an industry, we've made good progress in creating efficiency. But there's not been any great breakthrough. I would like to think that there's so much good technology and so many smart people that we'll be able to do what the auto and electronics industries have done."
Published in BIG BUILDER Magazine, November 2002