AHH, HOME BUILDING'S SUPPLY CHAIN. Just under half of home builders' costs are wrapped up in raw materials and finished products flowing to project sites through distributors, warehouses, distributors' warehouses, and other intermediary parts of the channel. No wonder builders and manufacturers have different and, at times, conflicting interests, perceptions, and agendas when it comes to identifying what should be important, what's not important at all, and what's in the way of fixing the channel.
BIG BUILDER magazine and its parent company, Hanley Wood Magazines, conducted research among the magazine's 13,500 reader executives in late summer that crystallized seven key “disconnects” between builders' views on supply chain issues and manufacturers' opinions: rebates, the importance of price, protection of distributors, the importance of upgrades, communication from manufacturers about product changes, communication from builders about product needs, and after-sale service. BIG BUILDER'S 2005 research benchmarks strategic agendas, management initiatives, and industry priorities that illustrate the intensifying stakes among billion-dollar players in a shrinking pool of mega-companies. The disconnects illustrate some of builders' critical challenges as they look to assert efficiency of scale across highly Balkanized multi-regional, multi-product enterprises.
To bring the debate alive, at Hanley Wood's American Housing Conference in Chicago in September, we invited leaders from the builder and manufacturer communities to join in a free-for-all conversation on these issues. Moderating the panel was Michael Hartnett, president of Atlanta-based consultancy Strategic Associates. Joining him on the builder side were Tony Callahan, director of corporate sourcing and procurement for Beazer Homes; Gordon Berken, vice president of purchasing for Transeastern Homes; and Mark Voetsch, vice president of purchasing for K. Hovnanian Enterprises. With the manufacturers' viewpoint were Tom Halford, general manager for marketing and sales for Whirlpool Corp.; Joe Guarino, general manager for distribution for Armstrong World Industries; and Michael Ulinski, vice president of sales and marketing for Masco Contractor Services. An edited excerpt of their conversation follows.
THE ROLE OF REBATES Hartnett: Rebates, everybody's favorite subject. Why do big builders want rebates? Why do manufacturers provide them? Who do rebates serve? Who needs them and why? The study that Hanley Wood did says 50 percent of manufacturers believe that rebates are important to builders. Only 30 percent of builders say they're important to them.
Berken: They're important. They give us a competitive edge over other builders in our area. However, I would venture to say that about 60 to 70 percent of the rebate deals … are probably never collected.
They have to be very simple. We're not checking serial numbers to count every single air-handler unit that went into the home. We try to base everything on averages. We have 10 percent of one accounting person in our corporate office who handles all of the invoicing for rebates. We have rebates on pretty much everything you can think of.
Hartnett: Joe, given a choice, why would you want to give a big builder a rebate vs. a net best price?
Guarino: Typically, between us and the builder, there's a distributor and/or a subcontractor. Those who deal with subcontractors know that if you start sharing cost positions openly with builders, your product is not going to be the product of choice with that subcontractor, and that's the reality of it.
The other piece of it is that once the information is being shared openly, what happens next? That's where the manufacturer gets concerned. What does it mean if we all sit at a table, and we decide we're going to be more efficient together and that we're going to share all of our costs? Does that mean that the builder has a vision for what everybody in the supply chain can make? What if that vision doesn't work for everyone else?
Hartnett: Tony, do you care if you get a rebate if you get the lowest net total cost?