In the complicated process of trying to consolidate vendors, sometimes you take two steps forward only to wind up taking one step back–and that's on a good day.
Consider Mercedes Homes' mostly successful effort to develop exclusive statewide, money-saving deals with suppliers in Florida. "We went to vendors, predominantly vendors we have used in one or two markets in the past, and realized that if we used them in [all] our markets, 4,000 units versus 400, we would have savings," says Craig Schmauss, corporate director of purchasing for Mercedes.
Early this year, Schmauss thought he had successfully nailed down exclusive contracts for drywall, roofing materials, and cast concrete products. Rinker Group would supply the drywall; Bradco Supply Corp. would provide roofing materials; and pre-cast concrete lintels and sills, as well as slab preparation materials in some cases, would come from Cast-Crete Corp.
Then he discovered a local manager already had a long-term agreement to purchase drywall from a different supplier. While that agreement wasn't steadfast, it was decided to make an exception for that local drywall supplier, which has been doing business with Mercedes for 15 years.
On hearing the news that their statewide deal wasn't quite statewide anymore, Rinker recalls saying, if it wasn't supplying to that city, then it couldn't provide to that region, and the statewide deal eroded to a most-of-the-state agreement.
Making The Cut
So goes the tedious supplier consolidation process that purchasing chiefs across the country painstakingly are working their way through. They carefully line up the dominos only to have one fall, triggering a chain reaction. Still, Mercedes has been able to make the statewide roofing materials and pre-cast concrete products deals stick so far. And, even though the Rinker agreement didn't apply statewide, it works for the majority of the state. What's more, it forced that lone supplier in the rogue city with the existing long-term agreement to lower the prices it was charging that division, Schmauss says.
"We can use it as a negotiation tool," he says. But Schmauss loses face when he tells a supplier it has a statewide exclusive agreement and it falls through. The next time that vendor is less likely to even consider a statewide pricing agreement, says Schmauss. "They are going to laugh and say, 'Yeah, just like the other three.'"
Still, Mercedes' consolidation efforts have netted real cost cuts. "We have definitely seen the dollar savings," Schmauss says. Plus it has put suppliers on notice that the company is willing to try to craft statewide exclusive contracts in return for price concessions.
In the wake of shifting all their business to the other two suppliers the vendors that lost out came to Schmauss and said they wished they had known, they would have been willing to lower prices if they knew they were on the verge of losing business. Some said they would have been able to offer a statewide deal, too.
Schmauss says it was difficult to cut off some suppliers that have been good and loyal to the company over the years. "It's almost a shame because at the height of the housing boom we couldn't afford not to use them because we needed them to keep up with the volume," he says. "Now we can't afford to use them."