About two years ago, officials of window maker MI Home Products started talking with large production builders about what it would take to secure national purchasing agreements with them. Since then, the Gratz, Pa.-based manufacturer says it has made headway with several of the industry's 20 largest builders, and its execution of those purchasing deals can be seen as a textbook example of what another supplier—Tim Regan, national accounts manager for Progress Lighting—colorfully termed “bloodstream selling.” It's a broader commitment, says Regan, where suppliers win with builders by establishing meaningful relationships with key associates throughout their organizations, not just at the buyer-seller level.
“We're trying to go beyond product and service to understand where a [builder's] division is headed,” said Regan, especially when builders shift into a new type of home or target a different customer. “We want our account managers to serve in a consultative capacity.” For the Spartanburg, S.C.-based lighting supplier, that's included field training, pitching the benefits of its programs to a builder's divisions, and mediating the product selection between a builder's purchasing and design center teams. Duron Paint & Wall-covering, the Beltsville, Md.-based manufacturer and retailer, has specialized reps who act as color scheme consultants for builders at the corporate level, while a separate team of local reps interacts with painting contractors who, according to Duron's director of marketing and e-commerce Gary Saiter, typically buy the paint they are hired by builders to apply.
MI's main challenge with most builders, according to its president Mike Jackson, has been a bit more fundamental: to convince purchasing vice presidents that the supplier was truly capable of implementing its programs in the field, “where a lot of these deals fail.” MI has expanded its alliances with distributors “so we can talk about price, product, and uniformity from a single source and still be flexible enough to meet code requirements” in different markets. At the 2004 International Builders' Show, MI introduced programs that, Jackson said, address risk mitigation, enhanced warranties, and perhaps most important, better communications between MI and the builders' jobsite supervisors.
As big builders continue to expand into more markets, the stakes for builders as well as suppliers continue to grow. More builders are clearly negotiating corporate purchasing agreements with suppliers. But several builders said they must weigh the strategic value of those deals against the relative ease or difficulty of their tactical execution, which is why builders still judge a supplier's performance primarily on how smoothly its programs flow into the field, and why some builders still prefer to let their divisions hash out purchasing contracts with vendors.
Local Presence “Every division needs to get as much attention, if not more, than headquarters does,” asserted Ric Rojas, vice president and director of national accounts for D.R. Horton, the Dallas-based builder with 47 divisions operating in 20 states. “The delivery of service is a local business,” added Mark Hodges, senior vice president of corporate operations for Red Bank, N.J.-based Hovnanian Enterprises, which has more than 300 active communities in 13 states.
“Local,” however, means different things to different builders. Most prefer to let their purchasing managers be their liaisons with suppliers. Others extend that responsibility to their production managers and estimators. Hovnanian also relies exclusively on its local purchasing teams to review the performance of its suppliers. However, it recently started inviting at least one national supplier to its monthly sales and purchasing meetings.
While Hovnanian, like most big home builders, doesn't like switching vendors, and Hodges recalled the “extremely painful” experience his company went through recently when it changed appliance suppliers, he quickly added that this builder isn't shy about using its size to get what it wants. “We'll do 14,000 homes in 2004 and 15,000 homes in 2005,” said Hodges. “At some point, the lion's share of most vendors' business will be coming from [The] Home Depot, Lowe's, and builders like us. We're their future.”
But builders' relationships with their suppliers over pricing, delivery, and installation get complicated when subcontractors and distributors inevitably become involved (see “Distribution Decision”). Big Builder's most recent survey of large-volume builders found that an overwhelming number of builders polled expect suppliers to empower their account managers to make decisions that don't necessarily require headquarters ratification.
The challenge for suppliers, then, “is to get with the right people in each [builder's] organization to be able to solve the problems of the day,” said Chuck Stein, vice president and general manager for Owens Corning's Home Experts division. “If you're sending a salesman in just to negotiate price, you're missing the boat. We want to be able to discuss short- and long-term strategy.”
Different Approaches Suppliers provide that personalized touch, which builders crave in markedly different ways, based on interviews with executives of nine leading manufacturers. Indianapolis-based Delta Faucet, for example, goes to market with a small army that includes 10 national builder account managers, four regional account managers, and two purchasing vice presidents who are supported by an independent service rep network comprised of 37 different companies and more than 300 people who are dedicated to Delta and its clients. “We offer builders the local service plus the corporate oversight,” said Jeff Andress, Delta's trade channel manager.
“There is this perception that once there's a national program, all you need to do is wave a magic wand for it to work,” said Dale Garwood, director of contracts and national accounts for Whirlpool. “That's not reality. You need to earn that, on a day-to-day basis, at the jobsite. That's the key to keeping [builders'] business.”
Over the past year, meanwhile, competitor GE Appliances has created what its general manager of contract sales Michael Jones called a “digital sales force.” Its salespeople are armed with wireless devices that connect them with the Louisville, Ky.-based supplier's databank, and allows them to provide builders with instant answers about prices, products, delivery, and account status. “We provide a local point of contact to every builder we sell, and we give them the same attention whether they're building 100 homes or 30,000,” said Jones.
Both approaches can earn favor or fault. Regardless of their methods, deciphering those differences is the first step for any supplier trying to figure out which managers on a home builder's organizational chart its representatives need to cultivate and nurture.
Aligning Relationships What makes that task daunting is the fact that several layers of management can have input in deciding which supplier a builder buys from. Big Builder's research found that purchasing staffs continue to play a central role in this process for the builders that were polled.
Shea Homes, for example, divides product categories among purchasing managers who are charged with finding vendor programs and pitching them to the rest of the purchasing team to see if they have company-wide application, according to Robb Pigg, vice president of operations for the Walnut, Calif.-based builder. But the survey also found that project managers, estimators, divisional presidents, and even CEOs can get into the act at some point in the negotiations.
Woodside Homes of Nevada has its vice president of purchasing coordinate all of the vendor deals with Woodside's divisional construction and purchasing staffs, which manage these programs, according to Paul Whitscell, a purchasing agent for the Las Vegas-based builder.
More than three-quarters of the home builders polled identified “access to a decision maker” and “access to delivery information” as “very important” components in their relationship with manufacturers.
As big builders expand into new territories, they are turning to suppliers that can provide them with what Bill Justus, vice president of supply services for Houston-based David Weekley Homes, called the “three-legged stool” of price, quality, and service.
It's no accident that manufacturers that succeeded at capturing the lion's share of builders' purchases are those that offer cradle-to-grave service in support of their sales programs and which reflect an understanding of each builder's corporate culture—how it buys, how it builds, and who takes over at each step. HVAC supplier Carrier, which has corporate or regional supply deals with nearly all of the industry's top 40 builders, takes a “global view” of each builder's purchasing setup. It focuses the efforts and resources supporting Carrier's seven-person national accounts team on that segment of a builder's operations that has the most influence over what gets bought, according to David Meyers, vice president of strategic accounts for the Indianapolis-based division of United Technologies.
Owens Corning converted what might have been a regional supply deal between Norandex, its siding distribution division, and Beazer Homes USA into a corporate program “by looking at this from end to end,” recalled Stein. “The problem wasn't that Beazer was paying too much for siding; [rather] we looked at things like warranty maintenance and customer service.” But now that Norandex has fully committed people and product mix to this program, Mike Giosso, OC's national general manager, wonders whether the next issue may be cycle times.
One thing remains certain: Suppliers will not only have to continue thinking globally and acting locally with big builders, but they'll also need to demonstrate the true value of the hard as well as the hidden services that occur in between.
It would be hard to overestimate the value of reliable product distribution to builders, or the potential problems their construction activities encounter when the supply chain is weak at some links. To take more control over this process, Hovnanian Enterprises is thinking seriously about opening distribution centers that would mimic the efficiencies seen by its Summit Homes division. Summit, which buys lumber, millwork, HVAC, and plumbing fixtures direct from manufacturers and stores them in a 215,000-square-foot warehouse in Ohio, has caught a good deal of attention in the corporate office. “That's a [business] model which appeals to us,” said Mark Hodges, Hovnanian's senior vice president of corporate operations.
More than two-fifths of builders polled by BIG BUILDER last fall claimed that a distributor served as their local point of contact between themselves and manufacturers. The leverage suppliers wield when negotiating purchasing deals with builders, then, often hinges on the quality and reliability of their points of distribution from the factory to the jobsite. “These relationships are always enhanced when distribution is in place,” said Chuck Stein, vice president and general manager for Owens Corning's Home Experts division.
Take paint, for example. Duron Paint & Wallcovering, the Beltsville, Md.-based manufacturer and retailer, has been presenting itself to builders as capable of national distribution because of its participation in Color Guild, the association of 17 regional paint makers. It's through that guild that Duron has formed distribution alliances with West Coast manufacturers and is able to strike corporate deals, according to Gary Saiter, Duron's director of marketing and e-commerce. This raises the question of whether builders would be better served by negotiating directly with wholesalers that have broad distribution capabilities. Beazer Homes USA continues to explore the possibility of striking a supply deal with two of the industry's largest plumbing wholesalers—Hughes Supply and Ferguson Enterprises—that could include a private labeling component, according to Beazer's national purchasing director David Singer.
Bill Justus, vice president of supply chain services for David Weekley Homes, in Houston, said he sees nothing wrong with home builders negotiating deals with roofing manufacturers such as OC at the same time they bought through roofing wholesalers, such as ABC Supply, with broad distribution. But Justus added that David Weekley tells its distributors their program has to “stand on its own, aside from the manufacturer.”
The answer may not be to set up captive distribution, like Summit Homes has. But the pressure by builders on suppliers to perform will increasingly fall upon the ability of their distributors to deliver.