By Iris Richmond. In May of 2000, Pulte Corp. invested hundreds of thousands of dollars in USBuild, the Denver dot-com that promised to streamline the building supply chain. Justification for the investment was easy, says Pulte's purchasing head, Alan Laing. The investment — both companies refused to specify the exact amount — would be more than paid back through the savings garnered from the overhaul of the supply chain, assuming that the partners' program worked according to plan. Has it?
After nearly two years of unbundling labor and materials costs, Pulte is seeing savings ranging from $500 to $700 per home in the Denver area. Cycle time is shorter by three to five days, says Laing.
Jim Kimzey, president and CEO of USBuild, explains where the savings come from: "With the trade contractors in our pool of prequalified trades, the builder can bid on the labor side with them, while USBuild bids on the materials. When you combine the bids, the builder saves money over the turnkey bid. On top of that, the just-in-time delivery reduces the number of days it takes to build a house."
Both Kimzey and Laing say these savings can be increased, and replicated in other markets, as USBuild's volume grows and product offerings expand beyond plumbing to include HVAC and fireplaces.
The two companies built their supply chain around plumbing products because, both partners believed, the true costs associated with their distribution and installation were most blatantly hidden by markups and substandard infrastructure.
Pulte uses USBuild's Web-based procurement management system to order plumbing products. USBuild then procures the products from manufacturers, picks them up, and takes title to them at their loading. Trade kits are assembled at the company's fulfillment center, after which all items are delivered just in time to the jobsite. Daily deliveries of materials arrive on time, says Laing, who describes USBuild's performance on this score as "flawless." Significant to the savings realized was the level of detail USBuild puts into shaping the bill of materials. "In some cases, the bill of materials lives in the plumber's head or on the back of an envelope," says Kimzey. "Many times, builders specify products that aren't even being made anymore. Our preloaded list is brand-specific and SKU-specific, and we keep track of changes manufacturers make to their model numbers. This ensures we deliver the right materials to the jobsite the first time around." If not, USBuild handles product returns.
If USBuild's staff of 12 makes a mistake that costs the trade contractor money, causing the trade to levy a charge back to the builder, the company reimburses Pulte. In the past two years, it's happened twice.
To become Pulte's supplier, USBuild first had to persuade manufacturers to sell to it direct. Then, the trade contractors had to be convinced to install builder-supplied materials from which they would make no profit.
"At the outset, we didn't have manufacturers or contractors lined up wanting to do this," reveals Kimzey. "But Pulte stuck to their guns and said, 'Look, this is the way we want to do business. If you're saying you don't want to participate, we're going to bring our business to someone else.' That threat was the bite we needed to make things happen."
Excising multiple markups meant finding trade contractors willing to work for the builder on a labor-only basis. The partners scheduled meetings and interviews with current and potential trade contractors to voice the advantages of this new way of doing business.
"Many [trade] contractors have misconceptions about how they earn a living in the home building industry," Laing says. "For some, the realization that Pulte isn't going to do things the way we have in the past came as a wake-up call."
Pulte's former largest plumbing contractor in the Denver market, for example, had no interest in unbundling labor from materials and consequently no longer works with the company.
Some resistance came in the form of sabotage. "There's a difference between being passive-aggressive and actively sabotaging things," Kimzey points out. "Passive is when it's the end of the day and someone leaves the tub the builder paid for out in plain open sight, thinking if it gets stolen, tough luck. Active sabotage is when tubs get dropped down the stairs, forcing USBuild to go get a new one." Both happened on a handful of occasions early on.
"It's a little counterintuitive, but trade contractors realized that working with USBuild makes them more efficient. Their profit per home increases, they do more homes, and they get paid faster."
For Kevin Johnson of Kevin Johnson Plumbing in Littleton, Colo., one of Pulte's largest plumbing contractors, it was the increased volume that made the plan appealing, combined with his belief that the industry is moving in this direction.
"We've seen a 20-percent gain in volume since we started doing work for Pulte [in Denver] a year ago," says Johnson, who notes that it "more than makes up for the profit center taken away from trade contractors through materials." Invoicing has been simplified, he says, and materials aren't an issue because USBuild realizes its services have to be first-rate. If something shows up defective, for example, it's taken care of within two to three hours, says Johnson.
The contractor still does the piping for Pulte but says that working with builder-supplied materials doesn't cause confusion. "The specific items come in different stages that don't overlap, so it actually works out well," says Johnson.
What began in September of 2000 as a four-month pilot at one Pulte subdivision spread to all of the builder's Denver operations, which produce more than 800 homes yearly. USBuild supplies all the faucets and fixtures to 10 subdivisions in Denver, plus four that are already completed.
"The greatest praise I could give USBuild," says Laing, "is to describe how the Denver division went from saying, 'Yeah, this is fine, but can they really do it?' to wanting USBuild in every community."
Pulte, based in Bloomfield Hills, Mich., reinvested in USBuild in February of 2001. At the same time, Centex, Lennar, and David Weekley Homes signed letters of intent to work with USBuild in Denver.
Although Pulte's original intent was to prove that a supply chain solution could be tested in Denver and quickly rolled out across the country, only in recent months have discussions begun on the second market in which to replicate the system. USBuild's labor capacity, Kimzey says, took longer than expected but is now in place. More than 100 trade contractors from the Denver area have climbed on board, and seven key relationships exist on the supplier side. Kimzey declines to name them, saying that most prefer to maintain a low profile so as not to upset relations with other customers and distributors.
"Other than it going slower than we hoped," says Laing, "it's gone as we expected. But this isn't a race. We're confident that we're onto the right thing."
Published in BIG BUILDER Magazine, September 2002