Back in the early 2000s, a whiz-kid Hughes Satellite Corp. thermo-dynamics specialist with a known flair for complex puzzles and the gift of being able to dumb them down for laypeople got an invitation he couldn’t refuse to speak at a Los Angeles fundraiser.
The audience—made up of mostly senior corporate executives of LA–based Fortune 100 companies who could write big checks—wined, dined, and stood in courteous silence during the speaker’s presentation. The money from the event would fund a scholarship to give undergraduate students an opportunity to advance their studies in the critical field of sourcing, logistics, and supply chain strategies.
When the talk ended, one of the corporate VIPs approached the speaker, mentioned that he was keen to contribute to the scholarship cause, and handed over a business card.
“By the way,” the executive said, “I’d like to talk with you about your joining our company to bring your strategies and your discipline into our organization.”
The corporate executive was Jeff Mezger, who’d go on to become chief executive officer of KB Home in 2006, and the Hughes Satellite Corp. rock star he courted that evening was Dan Bridleman, who today is a senior vice president for technology, sustainability, and strategic sourcing at KB, overseeing the vector of all things material and actual construction of homes at KB’s 300-plus community jobsites.
When Bridleman avows that high-volume home building purchasing, sourcing, and supply chain management is “not rocket science,” he literally knows whereof he speaks. What he says of the role, the disciplines, the proficiencies, and the geek-plus-people-skills talent blend it takes to be good in the field is this: “No, it’s not rocket science ... this stuff is really hard to do well.”
To put that remark in perspective, let’s do a bit of back-of-the-envelope math. Take current national new-home sales run-rates for starters, about 460,000 homes in 2014. The number is below expectations set at this time last year but still directional evidence of a slow ascent from home building’s “lost decade” starting in 2005.
Now, multiply 460,000 new homes sold this year by all home builders—large and small—by the approximate median selling price of all new homes this year, $272,000.
The product of those two figures is north of $125 billion, which we’ll say, for simplicity’s sake, is the approximate size in annual revenue for the new residential construction business.
Finally, divide that figure in half. That number is the amount people who run purchasing decisions in home building actually spend in direct and indirect materials, products, and labor costs—about $63 billion per year.
When you do a quick 80-20 rule on top of that figure, and conclude that roughly $30 billion to $40 billion of that total decision-making is concentrated among 600 or 800 people who work for the biggest 200 home building companies in the nation, it’s mind-boggling to imagine just how important those individuals are in housing’s ecosystem.
These individuals need to act on deep knowledge of materials science, scenario planning, financial modeling, advanced logistics, sophisticated negotiation, and on-site operations management. The repertoire of skill sets—interfacing with manufacturers, materials suppliers, labor subcontractors, land planners, architects, divisional profit and loss executives, truckers, global sourcing agents, etc.—probably exceeds most other pros in a home building organization.
We salute you and challenge you to excel operationally so your team and your organization can make the price and value proposition for home buyer prospects—even the entry-level ones—ever more compelling. Your place in the recovery is critical.
Our BIG BUILDER family and content team would like to say thanks to the National Fire Protection Association for underwriting the research and development of this issue, allowing us complete and total autonomy to raise audiences’ awareness on this vital issue in our community.