IT'S NOT USUALLY A PRETTY sight when a national builder rolls out a new technology initiative. That's what Jonathan Smoke, chief information officer at Beazer Homes USA, says he expected when he flipped the switch on a system to manage manufacturer rebates and incentives.
“With new applications, you usually point to things that took three years, millions of dollars, and left dead bodies down the hall,” Smoke says.
This time around, the experience was decidedly different. The technology took a couple of months to develop. The ROI was evident within the first quarter after implementation. Training took an hour. There have been few calls to the help line.
“This was absolutely a home run,” Smoke says. “There were no dead bodies.”
The system came about as part of Beazer's investigation into developing a company intranet. Smoke says he believed an intranet could help division staff collaborate and give them better access to information. During the due diligence, Beazer determined that using Web technology to tackle rebates might offer a quick win with significant ROI.
The classic problem with rebates, Smoke says, is that although Beazer knew what options were available for each plan, the details on those options rarely matched the product information the manufacturers require to calculate incentives. Each division procurement manager had to manually plug in which products went into each house.
“People were left to their own,” Smoke says. “If you were getting a quarter for something in a house, so what? You closed 100 houses. When it's not 100 houses, but 15,000 nationwide, that starts to be some serious money when it all adds up.”
National purchasing director David Singer, who says he considers incentives a “necessary evil,” was thrilled to have the opportunity to get a better handle on the process. “I felt there were tremendous dollars being left on the table,” he says, “and that absolutely was the case.”
A Big Mess Managing incentives requires up-to-date technology. It involves massive amounts of data requiring manual input, and there is a sizable potential for error. Beazer has roughly 140 agreements with 112 suppliers that offer cash and product incentives for more than 15,000 houses in 31 divisions. The incentive could be based on units or volume. The products might be installed in a house, a model home, or a design showroom.
Some of those products are purchased directly by Beazer, but others are bought and installed by trade contractors who might name the item something different on their invoice than the manufacturer or Beazer does. Of course, all of the agreements had their own reporting requirements and forms to fill out—precisely—to obtain the rebate.
Under the old system, Beazer had a huge spread sheet listing all the suppliers and products. Each division would get a slice of the spread sheet that applied to their products (i.e., Florida divisions don't offer basements, so they didn't get that part of the spread sheet). The purchasing manager would fill in his section of the spread sheet and list the materials that were used. On average, it took two days. That information would be e-mailed back to the corporate office, where the data would be pulled together and segmented into 140 forms to send to the suppliers. In short: It was a big mess and it frustrated everyone involved. It was so painful, it was only tackled once a quarter and took about two days to complete, Smoke says. Now it's done monthly with minimal effort.
The custom Web application was built in just two months—by Atlanta-based technology consultant Intellinet. It sets up the incentive agreements with each supplier. Each division pre-populates lists with the materials used in its plans. That connects to Beazer's back-office system, ensuring that the cost information in Accounts Payable matches the product detail from the divisions. A custom invoice is then generated for each supplier based on its requirements, says Glenn McCoin, senior solutions manager at Intellinet.
Beazer's data warehouse and sales application helped tremendously in creating the new application, Smoke says. That made it easy to tap into the company's house plans and see what options are sold on every home in the country.
Results, Results The return on investment was swift and dramatic. While most technology solutions have a three- to five-year payback, Beazer saw a spike in the incentives it was tracking almost immediately, Smoke says.
Singer says the application has been “phenomenal,” giving the company the ability to collect accurate incentive data for the first time by forcing the divisions to put reporting processes in place.
That gave Beazer and its suppliers confidence in the validity of the numbers, putting them in a position to negotiate stronger incentive packages at contract renewal, McCoin says.
The application is simple enough to use that training takes about an hour and Smoke says his department gets “close to zero support calls.”
“The good feedback we continue to get is that the application is easy to use,” he says. “It takes minutes to set up the new communities and the products associated with them.”
Plus, it's improved their relationships with suppliers. “The manufacturers are very happy with the detail they're getting,” Smoke says. “They have less work to do to verify the incentives are right.”
Beazer CFO James O'Leary highlighted the company's strategic national accounts program in his year-end presentation to industry analysts, reporting that Beazer doubled its rebates from $5 million to $10 million.
That growth has continued, Smoke says. In the first six months of fiscal year 2004, Beazer has collected almost the same amount as it did in the full 12 months of the previous year.
Smoke is quick to point out that the application wasn't the reason for all of that growth. “We had a concerted effort with David Singer and Jim O'Leary in negotiating better deals,” he says, “but we got more receptive to doing rebates because we knew we'd have a way to collect them.”