Trend #1: Controlling purchasing costs is the No. 3 business concern.
Tip: Take your department heads off site and spend a day talking about how the company can revamp its processes to reduce purchasing costs.
Busy as they are, builders still have their eyes on the bottom line. So many issues confront builders today it would be easy for slashing purchasing overhead to get lost in the shuffle.
But that isn't happening. Builders rated controlling purchasing costs No. 3 on their list of top business concerns for 2004, behind controlling insurance costs and finding qualified subcontractors. Fourth on the list was acquiring land on which to build, followed by improving customer service, hiring and retaining employees, and impact fees.
Interesting note: Concern over competition from national builders ranked next to last on the 15-point list.
Trend #2: Lumberyards, specialty distributors, and subcontractors still dominate the distribution channel.
Tip: There's no need to totally revamp where you buy; the trick is to get the most from each channel.
Builders may seem to buy materials from a wide range of sources. But a careful analysis reveals a logic to their choices.
Nearly 80 percent still use lumberyards to buy lumber, while 73 percent say they use subcontractors for HVAC equipment and 62 percent use specialty dealer/distributors for lighting.
One ongoing trend: Builders are using warehouse home centers to buy tools (45 percent) and hardware (23 percent). See chart
Trend #3: Relationships with suppliers are important to builders but so are timely deliveries, having product in stock, and competitive prices.
Tip: Go over your supplier list and rate them on timely delivery, stocking product, pricing, and all the other qualities that are important to your company. Keep the suppliers that score high.
The top five criteria for selecting a supplier are timely delivery, having products in stock, price, knowledgeable sales reps, and loyalty/past relationships. Basically, builders want someone they like, who's reliable, delivers on time, and sells at good prices.
The second tier of supplier criteria includes special order capabilities, after-sales support, return policy, nationally recognized brand, and credit policy. E-commerce capabilities and rebates scored in the third tier.
Trend #4: Builders are buying from warehouse home centers, but on a limited basis. They don't have a high opinion of mass merchandisers.
Tip: Push the home centers to improve their deliveries, customer service, and overall service levels.
The Home Depot and Lowe's rank as the top warehouse home centers builders use, but aside from tools—45 percent of the group say they purchase tools from home centers—builders aren't buying their big-ticket items at home centers.
Builders are also less than thrilled with home centers. Based on a one to 10 scale, The Home Depot, Lowe's, and Menards ranked below average on delivery, knowledgeable salespeople, and overall service. Pricing was the only area where both The Home Depot and Lowe's came in above average, explaining why builders shop there for tools.
Trend #5: Buying direct is not all it's cracked up to be.
Tip: Work with manufacturers to shorten lead times and sharpen pricing.
Almost 30 percent of the builders surveyed don't purchase building products directly from the manufacturer. Of the companies that do, 31 percent say shipments from the manufacturer work out fine, while another 41 percent say they have experienced problems, mostly with lead times, pricing, and ease of ordering.
This is an age-old issue. Industry has been looking for ways to cut out the middle man for 100 years, but as long as dealers, distributors, and subs hustle and add value, there's no pressing need for manufacturers to go into the distribution business.
Trend #6: Web-based purchasing and the use of computers improve industry communications.
Tip: Tie your suppliers and subcontractors into your Web site.
Builders are making more progress with technology than people give them credit for. A full 44 percent say that the use of computers and Web-based purchasing has strongly improved communications with suppliers.
Eighty percent of builders surveyed say they communicate or plan to communicate electronically with subs and suppliers. And one-third of builders surveyed use purchasing software in the back office, while another 13 percent have plans to do so.
One area that needs improvement: Only 9 percent are using handhelds in the field to track invoices and purchase orders. But 30 percent say they have plans to deploy handhelds.
Trend #7: A clear majority of respondents bill subcontractors and suppliers from their own purchase orders or plan to in the future.
Tip: One way to streamline paperwork is to move your suppliers to a system in which your company is issuing purchase orders.
One of the best ways to gain control of the purchasing process is to start issuing purchase orders after the contract is ratified and work is released. This system can sharpen your cash flow, since the back office now only has to wait for the supers to sign off on the work to pay the bill, instead of waiting several weeks for invoices to come in from subs, who are typically poor managers.
Builders can maximize moving to a purchase order system if they automate, since electronically sending out purchase orders eliminates the supers from having to sign invoices by hand, and accounts-payable clerks no longer have to enter invoices into the company's back-office system.
Forty-three percent of all respondents say they bill from purchase orders, and another 14 percent plan to in the next few years. Broken down by type, 61 percent of single-family, semi-custom builders bill from purchase orders, as do 50 percent of single-family production builders. The single-family custom builders were off the pace at 40 percent.