The subject of this month's cover feature—how to purchase more effectively—isn't the sexiest of topics. I wouldn't compare this issue of BUILDER with Fortune's list of the 100 best companies to work for, the Sports Illustrated swimsuit issue, or Rolling Stone's list of the 100 best albums of all time.
But it's hard to think of a topic that means more to the health and profitability of home building companies. Four years ago, at the height of the Internet craze, widely cited and widely believed reports labeled home building one of the most inefficient industries in the country. The reports documented billions of dollars in potential savings through:
What's Changed?Four years later, is anything different? Well, there has been a groundswell of Internet use within the industry. It's remarkable to see the digital tools that builders use today to get things done in a better way. But the industry by and large remains “super-inefficient,” especially in purchasing, says Bruce Karatz, chairman and CEO of KB Home, who spoke at this year's Presidential Seminar in Aspen, Colo.
A reader survey we conducted for this issue shows that controlling purchasing costs is one of the industry's top three concerns, behind only controlling insurance costs and finding qualified subs. It also provides some targets for improving purchasing. Though a large majority of builders do their own take offs (85.9%) and separate material from labor costs when they go out for bid (71.2%), some still don't. Every builder needs to do these things.
The industry has yet to take advantage of some new digital tools to control costs. Only 32.8 percent use purchasing software in the back office. And a mere 9.2 percent equip supers with handheld computers to track invoices and purchase orders. You need to take a hard look at these productivity-enhancing investments.
Buy It Right Technology, of course, isn't a magic wand. Saving money in purchasing is all about having the right processes in place and adhering to them with discipline. A dealer friend of mine likes to joke that all the Internet has done is speed up the communication of bad information. It's a slap against builders who order incorrectly, sometimes because they don't know what they really need, or order it sloppily, because they know suppliers will make it right—at a cost, of course.
For this issue, we sent our writers out to report on builders throughout the country who do things the right way. They came back with a report that reads like a “Day in the Life of the Building Industry”—at least the part of the day that relates to purchasing. We hope this issue inspires you to search for improvements in the way you buy materials and services. Unlike margin improvements, which often get eaten up in a higher cost of doing business, purchasing savings can drop to the bottom line. Remember the immortal words of the business sages—a penny saved is a penny earned.
Boyce Thompson, Editorial Director