When you buy vinyl siding, you usually get a turnkey bid simply stating the number of squares for the house, the price per square foot, and the house total—that's about it. No specific costs associated with distribution, inventory, packing, etc., are listed. Recently, one big builder in a large market refused to do it that way.
The builder insisted that material, labor, and logistics costs all be listed separately. The builder also demanded that the manufacturer and distributor be at the meeting with the installer to answer questions. The end result: an 18.5 percent savings on the total bid.
Most builders purchase lots of their building materials through subcontractors as part of a turnkey process. BIG BUILDER magazine research shows that of the total products purchased for a new home, 51.5 percent are invoiced through a subcontractor using this process. Given all the builder consolidation, why are many big builders still using this turnkey process? What is the value for them and what is the value for the manufacturer and the rest of the supply chain? Finally, how can we use this process of turnkey services and still optimize the supply chain?
The products that come with turnkey services to the builder include siding products, roofing, insulation, framing, foundations, heating and cooling systems, and many more. The value to the builder for these turnkey services is tremendous. The builder gets installation, warranty service, jobsite just-in-time product delivery, scheduling, takeoff service, and many other services—all in one basket, from one source and with the payment of one invoice. Without these services, builders could not produce the volume of homes that they do with their current staff.
To keep that turnkey efficiency and optimize the supply chain, we need to disaggregate or unbundle these services during the bid process to understand all of the services being provided, who is providing them, and who is paying what for them. For vinyl siding, as with other purchases, the services are extensive:
Of course, the norm is to not list all of these services on the invoice.
In the case of the aforementioned big builder who insisted on various costs being listed separately, there were many proposals during the negotiation process for the total team to examine.
The good news is that most of the savings occur by reducing redundancies in the supply chain, and not out of the operating margins of the participants. Similar methods can be used for all of the products that are currently sold turnkey.
Disaggregating the bidding process does not necessarily mean the end of turnkey convenience, but the beginning of more supply chain understanding and cooperation. Brought to the highest level, this type of purchasing can encompass the sales, marketing, and advertising of the manufacturer, distributor, installer, and builder to reach the target customer more efficiently. We always have to remember the part of the supply chain that ends with taking down the “home available” sign.