Cutting the costs of building a house has more to do with building supplier partnerships to eliminate inefficiencies and develop synergies than it does with hammering suppliers for price reductions, top builder supply chiefs told a group of Big Builder '07 attendees Wednesday, Nov. 28, during the Operational Excellence panel "Through Thick and Thing: Smarter Sourcing."
In fact, said Pulte Homes vice president of strategic sourcing James Coffey, it isn't the trade partners but the builders who are responsible for most cost inefficiencies. "The builders themselves are often the biggest obstacle" toward cost cutting, he said.
Coffey claimed the secret to creating partnerships to cut costs is to promise trade partners that they will still make a profit. "As long as everybody knows they will make a profit, they should be open to an open-book relationship with the builder," he said.
Creating enough trust to open their books enables builders and suppliers to work together as a team to cut out inefficiencies and save dollars.
Standard Pacific has found significant savings in delivery costs by grouping deliveries of different materials in the same loads by single suppliers, said Ken Pinto, the company's national programs manager. For instance, Standard Pacific asked a drywall supplier to deliver electrical fixtures as well.
"The money is in the bottom of the supply chain, not the top," said Pinto. "There is a lot of money out there on the table that can be taken."
Beazer Homes USA is finding large savings by simplification, said Tony Callahan, the company's senior vice president of national purchasing, planning, and design. "Less is more," he said.
The company has reduced its number of floor plans from 2,017 to about half that number and eventually plans to get its plan library down to 575. It also has significantly reduced SKUs, which can save costs because you end up buying more of the products you choose even in a down market, Callahan said.
Beazer also took a hard look at the different costs of installing the same carpet in multiple markets, finding large discrepancies. After renegotiating with contractors, the installation costs were cut by about $897 per house.
Callahan also emphasized the importance of team building to create solutions. "People who help plan the battle don't battle the plan," he said.