By Steve Zurier Builders who use the Internet to run e-commerce transactions with suppliers and subcontractors report tangible benefits--but their numbers are few overall.
John Payton, director of information technology at Edward Hines Lumber Co. in Buffalo Grove, Ill., doesn't mince words when he talks about how few builders use e-commerce systems to communicate with suppliers over the Internet.
"The Web is not a totally revolutionary force in our industry--it's more like adding a fax machine,'' Payton says. "The reality is that the basic content of the information hasn't changed. People in our industry are still ordering material from a lumberyard. We've just added another way to communicate."
And that's from a manager who believes in Internet purchasing. Edward Hines uses Buildscape's online purchasing system with its builders and has brought in about $2 million in Internet sales during the past two years.
But the adoption rate is low: Only 30 customers out of the 300 that Edward Hines pitched the system to use some aspect of Buildscape. Payton says some order online, others check order status, and still others download invoices to QuickBooks, but very few use all three functions.
Research from BUILDER's sister publication PROSALES supports Payton's comments. When PROSALES asked 842 builders which criteria they use to select a supplier, out of 16 features, "meeting anticipated delivery times" topped the list at 93 percent; "e-commerce capabilities" was dead last at 14 percent.
Builders were also asked which types of communication suppliers should concentrate on most. Fifty-seven percent said on-site visits, and 51 percent said product demonstrations, while 26 percent said Web sites, and only 18 percent checked off e-mail.
So why is use of the Internet such a slow go on the supply-chain side?
One answer is that technology is not a core part of what builders do every day. Another important point is that the supply chain in the building industry is far more fragmented than builders imagined a few years ago when they formed BuildNet and other B2B supply-chain groups at the height of the Internet boom.
Carlo Guarino, business director at Buildscape, points out that Stock Building Supply, the largest lumber supply dealer, only controls 2 percent of the market. "The founders of BuildNet put all their resources into development and organizational growth, thinking that success would be around the corner," Guarino says. "But this industry is too fragmented to turn on a dime. You really have to have the patience to work with early adopters to build successes and develop credibility in the market--and that takes time."
Not dead yet
As tough as the e-commerce challenge is, there are some rays of light.
Dave Cooper, director of field systems and technology for Vernon Hills, Ill.-based dealer Wickes, says his company has roughly 1,000 builders running some aspect of Buildscape's system on at least two or three projects at a time. Cooper confidently predicts that in six to 12 months, of the group of 1,000, the builders that have QuickBooks will be using all of Buildscape's main functions, including ordering online, checking status, and downloading invoices from Buildscape into QuickBooks.
Some builders are taking matters into their own hands.
Fischer Group, a builder in Crestview Hills, Ky., that builds in excess of 900 homes a year, developed a custom-built purchasing system that's saved the company $600,000 annually for the past two years.
John Cann, the company's director of information systems, says the system saves the company $12.50 per purchase order. The savings come from reduced printing and mailing costs, increased accuracy, and the time superintendents save by not having to sign off and approve invoices.
Fischer has 124 suppliers and subcontractors on the system. Instead of faxing or mailing purchase orders, Fischer electronically sends out two copies of the P.O., one to the vendor, the other to the superintendent. Once work is completed, the vendor submits an electronic request for payment, and the superintendent signs off on his handheld, which triggers the system to pay the bill. While the interface is not Web-based, the transactions are distributed across the Internet.
Beau Engman, CEO of BuildTopia, which markets a Web-based construction management system, says his company has successfully streamlined bidding and purchasing management for some mid-sized regional production builders and their subcontractors.
John Corgan, president of Mitchell amp; Best Homebuilders in Rockville, Md., says BuildTopia lets his company expand options and manage more house types. "We've got 30 active house types with different options for each house type," notes Corgan, who says the company closed 83 units last year for $53 million in settlement volume. "If we had to manually generate all those prices and options it would be impossible."
In the past, Mitchell & Best would fax or snail mail bids to the subcontractors. As part of the bid request, the contractor would attach a list of all the options on the job, most of which didn't pertain to that specific subcontractor. Now, BuildTopia sends over only what pertains to the sub. The sub can enter quotes directly on the BuildTopia system, which saves Mitchell amp; Best from having to re-key quotes.
Once bids are received, Mitchell & Best makes the awards and sends out e-mails to the subs that won the contracts. One big goal is to complete the bids before the sales process moves forward. Once home buyers select options, jobs are scheduled and the subs are notified a few weeks before the work date. When a sub completes the work, the super signs off on the BuildTopia system; the subs can check a list that shows the work orders are either approved, open, or voided. The sub submits a paper invoice for the work that's approved, and an accounts payable clerk confirms the super approved the work and then pays the bill.
Although e-commerce capabilities may not be a front-burner issue for most builders, some are looking for quality suppliers and subcontractors, with an eye toward nudging them into e-commerce.
"I think we all want the best vendor for the job first," says Cann. "We want a supplier who can supply quality material on time, service the material, and is willing to partner with us and head in the direction of e-commerce. The idea is to optimize our system so we can reduce our costs and our vendors' costs."
These are tough times for the true believers. But while it's clear adoption is slow and the Internet has been discredited, the purchasing function still universally exists. Builders that take the technology seriously and get these Internet-based systems to work still have much to gain.
Low on the list: Builders rated e-commerce capabilities dead last when asked to list the criteria important to them in selecting a supplier.