When Chuck Chippero goes shopping, you can bet he looks at price. As national commodity director at PulteGroup, he’s responsible for setting up the product partnerships to supply material and components to the nation’s third-largest home builder across 37 states and 27 divisions. But while cost matters, as well as the size of the discounts he can negotiate from his suppliers by committing his sizable checkbook to them, Chippero looks at a lot more than just the invoice total.
“It goes beyond price,” he says. “You’ve got to make sure both sides understand the relationship is bigger than just the cost of materials or what’s going on at the division level. Our partners want to be the supplier of choice for Pulte. On the Pulte side, we want to be the builder of choice for that supplier, as well.”
For builders, advantages from such partnerships can include supply guarantees, discounts on materials, or rebates. Other desirable facets come in the form of reduced- or no-cost products for model homes and design centers; sales training; and product and building science know-how at the jobsite for staff, trades, and subs. But builders and manufacturers alike say these partnerships shouldn’t be based on numbers alone.
“We want to know what’s important to our builder partners, and the two or three things that are really driving their business, so we can align our resources to help them meet their goals,” says Bob Bergeth, general manager, contract builder sales at Whirlpool Corp., which has an exclusive partnership with Pulte to supply appliances to its homes. “It’s like a marriage—the more time you spend together, the more you learn about each other.”
To that end, builders want to make sure the manufacturers they partner with are a good fit for their business, can serve them across the regions they operate in, and will be there for the long haul.
Be Ready to Commit
Just like in a marriage, it takes dedicated partners to make these relationships work. Builders who have maintained these types of relationships for years say that while having a good manufacturer partner in their corner makes life easier—and more profitable—they have to give something on their end as well. That means doing what it takes to streamline processes from an administrative and accounting standpoint to make their company easy to do business with, and finding the right product programing and mix that’s profitable for them and their partners. For example, Pulte implemented an electronic ordering system, and pared down the number of different models of appliances it orders to make things more palatable for Whirlpool. Then, there’s the critical aspect of providing channel insight back to manufacturers that they are so hard-pressed to get any other way.
“It’s almost always a win-win, but it does take time and energy on our part, too,” says builder Mark Nuzzolo, owner of Brookside Development in Woodbridge, Conn., who has partnered with manufacturers such as SunTegra, Panasonic, Danze, and American Standard. “They’re almost always willing to help, as long as we give them feedback, because they can’t really get it any other way.”
Know Your Partner
While partnerships can and do add up to real money, before inking this kind of agreement, builders say they did some legwork up front so each side knew what to expect.
Take Chippero, who does a full vetting of his supply partners before making any exclusive or preferred deals with them. He has a standard matrix of survey questions he poses to potential partners. He makes sure to ask about distribution capabilities in each region, where components in their supply chain come from, and of course, product history and performance.
“There needs to be an extensive interview process,” Chippero explains. “We perform the due diligence necessary to make sure that that particular supplier is a good match for our business.”
Sell Your Strengths
But while a builder like Pulte obviously has the heft to get manufacturers like Whirlpool to come to the table, observers say smaller builders have something to offer that’s just as attractive: boots-on-the-ground knowledge of how products work, how crews install them, and real-time insight into building trends. That’s become even more important as building codes have tightened, and an emphasis on high-performance homes has hit the industry.
“What’s happening is, as the codes become more restrictive, manufacturers want to talk to guys like me precisely because we’re small,” says Nuzzolo, who builds about 12 homes a year. “In that case, it’s not so much them wanting to sell the product as it is they need help developing it. And they’re not going to get there by talking to a division president at a top 10 builder, because the guys who run the business don’t have the working knowledge of the product.”
For example, Nuzzolo has worked with SunTegra to sell and install its integrated solar shingles on his homes, and with Panasonic Eco Solutions to test its WhisperGreen Select Energy Star fans that help remove moisture and improve indoor air quality in the bathroom. Nuzzolo was able to provide feedback and ideas for easier installation, while identifying both the number and types of trades needed for the job.
In return, he’ll typically receive free sample products, and training for his crews and subcontractors on-site, as well as design assistance. From his perspective, that type of hands-on training alone is reason enough to deal directly with manufacturers.
“Getting less expensive product or samples is nice, but we’re not a high-volume builder,” Nuzzolo says. “What’s absolutely necessary, though, is to have the technical assistance and support that only the manufacturers can give you. By working with these manufacturers, I’m getting expert advice in design, and support and training for my crews on the individual products. That’s pretty valuable.”
Be Prepared to Overhaul Your Supply Chain
Being on a manufacturer’s radar can help smooth over any supply chain hurdles to make sure material gets to your jobsite when it should, without shortages or backlogs, and save your clients in other ways in the long run.
“These partnerships help streamline the supply chain so that you don’t miss deadlines, because the products are ready on time,” says New York–based developer Arik Kislin. “Not only is the builder paying less than wholesale price, you’ll often get more product, more quickly. You can also negotiate terms to eliminate or reduce delivery charges, and a host of other, smaller details, because the manufacturers treat it like their own business.”
From that perspective, these relationships provide something that’s hard for builders to put a price on, especially in an industry where hundreds of trades and thousands of products go into each finished home: an assurance that it will all get there, and get done, on time.
“The biggest benefit to the builder is certainty—certainty of product availability, and certainty of a place for production to go,” says Craig Miles, director of sales and marketing at Livingston, N.J.-based Inteplast Building Products. “Typically, these relationships are pretty straightforward—both sides agree to prioritize the other in the transaction. So the biggest savings is really time. Instead of having to scour the market trying to ensure they are getting a competitive, quality product, builders have that assurance through their commitment to and from the manufacturer.”
Expect Some Give and Take
Small or midsized builders shouldn’t underestimate the value they can provide manufacturer partners. Just ask Steve Scarbrough, director of strategic programs, residential, at Mitsubishi Electric Cooling & Heating, which unveiled its Performance Builder Program at the recent International Builders’ Show in Orlando, Fla., to partner with builders and educate the market about its ductless mini-split HVAC systems.
“As a manufacturer, we’ve got very little exposure to the types of homes our products go into once they’re sold through distribution,” says Scarbrough, who notes that at the very best, he gets warranty registration on just one-third of his products. “We’re willing to incentivize builders to gain that type of information on a much larger percentage basis because it’s invaluable to us.”
While insight into the channel is obviously good for manufacturers, there are ancillary benefits for builders giving this kind of feedback, as well. For instance, Andy Hansen, national sales manager for the builder channel at Gerber and Danze, says when builders help the sister companies understand how products are used, it helps them plan out ways to better serve the market.
“These relationships allow builders to maintain consistency within their product lines, while helping us develop and provide the types of products that work best for their homes,” Hansen says. “While price is certainly part of the overall equation, the benefits of these partnerships are much deeper.”
Indeed, another benefit might be early access to entire new product categories that help builders in other ways.
That’s what happened with Shea Homes—ranked No. 18 on the 2016 Builder 100 list— and Owens Corning at Shea’s Trilogy at Rio Vista community in California. There, Shea was trying to develop a system for a high-performance attic that would help it evolve toward building zero-energy homes. But it was having issues with thermal breaks where rafters got in the way of insulation.
“Working together, we developed a netted system with blown-in fiberglass, which contractors know how to work with already, to cover those thermal breaks,” says Dave Rosebery, business market leader, residential insulation, Owens Corning. “The result is what we call our High Performance Attic System, and it’s probably been installed in 500 homes in that community at this point.”
Working with manufacturers to come up with new products is a trend that will grow in the years to come, says Ted Cater, customer innovation manager at Panasonic Eco Solutions North America, which has been working with builders in its Innovator’s Club, including Nuzzolo at Brookside, to develop new ventilation solutions in light of upcoming codes. “I routinely get emails from Innovator’s Club members asking about solutions, and we’ll work through them together. There are solutions that builders and contractors are working on that manufacturers haven’t even seen yet.”
Be Aware of Risks
Manufacturers often will sweeten the deal for a builder who agrees to an exclusive supply agreement. But while that can result in bigger savings, there are risks, too. For instance, at Pulte, Chippero says his exclusive agreement with Whirlpool isn’t the norm, but it works due to the broad range of products and price points available across the manufacturer’s Amana, Maytag, Whirlpool, KitchenAid, and Jenn-Air brands. For the most part, Chippero prefers to have at least two supply partners for each sourcing area. “Very rarely would we choose to put all our eggs in one basket,” he says.
Dublin, Ohio–based Epcon Communities also tries to avoid exclusive arrangements with manufacturers. “We don’t enter into exclusives, for the most part, because choice is essential,” says Ryan Braet, Epcon’s director of purchasing. “Our national accounts program typically consists of the top two vendors in any particular category.”
While these partnerships do help builders with discounts up front or rebates on the back end, which promotes margin expansion in the final sales price of the home, experienced practitioners caution against trying to sell home buyers on only those products you make the most money on.
“When builders aggressively push a particular product they have the most margin on, quite often at the expense of the client, it can cause other problems down the road,” says Brett Riordan, vice president of Tellus Build, a custom home builder in Los Angeles. “The builder cost versus client cost on particular products—defined as an allowance—can be misleading. The nature of an allowance is to pass on that exact price to a client, not the retail price. So if you go against that and the client becomes aware of it, you’ll jeopardize more than just your margins.”
Make the Most of Direct Access
For Stephen Crouch, vice president of manufacturer relationships and marketing at Littleton, Colo.–based Builder Partnerships, which forges relationships between builders and manufacturers, these deals are about the advantages that spring from connecting directly with the companies whose products end up in homes—an anomaly in an industry that’s built largely on two-step, third-party distribution.
Builder Partnerships’ rebates are usually volume-based. Crouch says large national builders who produce 10,000-plus homes annually can receive $2,000 or more per house. Builders building less than 1,000 homes per year will average closer to $500 to $1,000 per house.
While he stresses that the partnerships he sets up between builders and manufacturers aren’t transactional—products and materials still flow through traditional channels so that distributors are cut in, with rebates given on the back end—having a direct relationship with a manufacturer can expose builders to products and solutions they might otherwise not know about.
“Even the best distributor can’t carry every product, or know every service a manufacturer offers,” says Crouch, whose firm gives builders access to rebates from more than 50 manufacturers, 65 brands, and 45 product categories. “The best way for a builder to know how a manufacturer can help them is to talk to the manufacturer directly.”