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June, 2007

How To Sell To Big Builders

Production builders could greatly boost your volume. Do you have what it takes to help them help you?

By Rob Fanjoy

Given the condition of the current housing market and daily news of losses sustained by large, publicly held building corporations, you might think that now is not the right time to be courting the business of big builders.

That may be true to some extent, as some builders’ reaction to surplus housing stock is to hammer their suppliers down to the point where their margins are minimal or even nonexistent. But within every challenge lies an opportunity, and suppliers who find ways to help their big builder clients through these hard times could find themselves as the go-to guys when things pick up.

"The national builders are getting beat up so badly right now that some are resorting to what even they would admit are at least strong-arm—if not downright unethical—tactics with their suppliers to trim their own costs,” says Scott Sedam, president of TrueNorth Development, a homebuilding industry consulting firm in Northville, Mich.

"The fact that they’re willing to do it anyway shows the intense pressure they’re under from corporate headquarters, Wall Street, and their shareholders.” But Sedam says that there are the rare national builders who give their regional divisions purchasing autonomy. Add to that a host of privately held big builders that are not bound by corporate edicts and which, even in the current economic climate, present great business opportunities for LBM dealers. "That’s often where you’ll find the purchasing guys who are much more willing to look at new ideas and techniques that end up serving both parties well,” says Sedam. "And if you can be someone who helps them come up with sound solutions to their current problems, then you’ll be their guy when things are booming.”

Value Has Greater Importance

If you’re trying to woo a big builder, low prices will still be at the top of their list of priorities, but what will ultimately sell them is lower total cost. That is, when they factor in things such as reliability, quality, expertise, and strong warranty services, they’ll see that a couple hundred dollars in materials savings isn’t going to stretch all that far.

Donnie Bowman, president of Khempco Building Supply in Columbus, Ohio, has what he calls great relationships with both of the big builders serving his market. "We’re not the cheapest supplier in town, but these guys place a high value on the quality of the products we deliver and install,” he says. "They’ve both turned into long-term relationships because they’ve found us to be reliable, and if they call and ask for something special, they have a comfort level that we’ll do what we can to come up with a solution.”

Some of the solutions dealers can provide include having a dedicated person to handle the account, and providing quick and accurate takeoffs and follow-through so every delivery is on time and complete. It sounds simple, but finding a way to get all the right materials on site the first time will keep the builders on schedule and reduce hot-shot deliveries, which will keep both your costs down.

If you want to get a little more involved, Sedam suggests you offer to do an intense analysis of your targeted big builders’ material choices. This could be as simple as suggesting a lower-priced siding product with a similar look and warranty as their original choice, or to know that OSB would be a suitable and cheaper alternative in spots where the builder is using plywood.

"Don’t be afraid to get creative,” says Sedam. "I know of one lumber dealer who suggested to a builder that he use open-web trusses for floor joists. While the initial cost was more, the builder was able to get lower bids from electricians and plumbers, and the trades shaved some time off installation.”

Helping builders maximize their materials is another way to help them realize sizeable savings. Sedam says that framing crews out West have long used cut sheets that tell them exactly what framing members to cut, from exactly what sticks of lumber. This prevents them from using #2 KD lumber for blocking and bracing members, for instance, and can help reduce construction waste and hot-shot deliveries. "If the builders you’re dealing with don’t use or don’t want to use cut sheets, you can still help them by isolating and marking those pieces of lumber that are intended for framing and those that are for bracing and blocking,” says Sedam. "Little things like that may not get noticed right away, but if you save a builder a couple hundred bucks a job on a thousand or more jobs, that will get noticed.” And when a builder simply has to trim his materials costs, there are solutions.

"The buying expectations of today’s consumers are a little unrealistic, so builders have to ask for rollbacks,” says Bowman. "With certain items such as lumber, LBM dealers can’t really get price discounts or rollbacks to pass on, but with some of the more stable, non-commodity items such as housewrap and some siding products, we’ve been successful in negotiating discounts that we can pass on to the builder.”

Tailor Programs to Their Needs

Many large builders today are actively looking for more assembly and installation services. Having someone who can deliver and install interior doors, stairways, appliances, insulation, windows, housewrap, trim, and even siding can alleviate a lot of headaches and streamline a builder’s operation.

One of Bowman’s more popular offerings with builders of all sizes is housewrap installation.

"Mold is a huge issue with builders right now, so we try to take ownership of the building envelope by installing wraps, windows, and trim, and then we’ll take the liability,” he says.

Bowman adds that those services, "[have been] been huge with the smaller guys and the big builders are warming to it.”

Some builders who may have a well-established core labor group in their markets may not be looking for many installation services, but for big builders just expanding into a market or those with labor troubles, installation services can be a godsend. Even if those builders only choose one or two of the many installation services you offer, excelling in those services will at least lead to customer loyalty, if not an eventual request for installation of your other products.

Whatever services and programs you offer large builders, Bowman says the most important thing to remember is to understand what the builder wants and to understand the volume you’re trying to undertake. In other words, know how much you can do and still maintain that high level of quality and service you’re promising.

"Every big builder has different needs at different times. When you promise them something, make sure you can commit and perform, because you often only get one chance,” says Bowman.

Rob Fanjoy is new to LBM Journal, but is no stranger to residential construction. He has been writing about the building industry for nine years, beginning with Professional Builder and Custom Builder magazines, and most recently as editor of Smart HomeOwner magazine. Before that, he worked for a general contractor for 13 years.

PROFILES: Bernie Glieberman, President and CEO Crosswinds Communities Headquarters Novi, Michigan Markets 11 states across the Midwest and South, including Arizona and California 2006 Closings 1,750 single-family homes

"We’ve got a great network of local suppliers we’ve been loyal to for years,” says Glieberman. "It benefits us to maintain suppliers as much as possible. It gives us consistency in our processes, and warranty issues are much easier to resolve when you’re dealing with the same people year after year.”

Glieberman looks for these qualities in an LBM supplier, in order of importance: reputation, image to buyers, location to job sites, any past relationships he has had with the supplier, and references from other builders big and small. While Glieberman says most purchasing decisions are left to his individual division managers, he says instances where they’ve had to stop doing business with a supplier have been few and far between. "The only reason we’d do that is because the quality of their work or delivery was bad, or there were lingering problems like changes in materials in the middle of several jobs, but that’s rare with our suppliers.”

While he’s happy with his suppliers, Glieberman still feels that a lot of suppliers don’t understand what delays in the construction process do to builders relying on tight schedules. One day late on a material delivery can cause havoc with the trades’ schedules, lead to other delays, and easily wipe out most of the profit margin on a single project. "When a supplier is late or doesn’t show for a warranty issue, [that] is another huge thing for builders,” he says. "Not only does it cost time and money to set up the meeting in the first place, but it really reflects poorly on us in the eyes of the homeowner, and the problem still isn’t resolved.”

Crosswinds takes advantage of all the supplier installation services they can, and Glieberman says that most suppliers are doing a great job of offering as many such services as possible. "We have our lumber companies install the windows, and it’s almost like we don’t have any window problems anymore,” he says. "They deal with the installation and warranty and we don’t have to worry about job site theft and damage. That’s a big reason why we’re loyal to the companies that offer those services.”

Bill Justus, Vice President of Supply Chain Services David Weekley Homes Headquarters Houston, Texas Markets 13 markets across the South 2006 Closings 5,360 entry-level and move-up homes

"We look for providers of an optimal balance of low price, service, and quality,” says Justus. "And when I say low price, I don’t mean the lowest price.” He says that from a strategic standpoint, David Weekley Homes likes suppliers who are able to avoid wild changes in pricing. "I understand that commodities go up and down—sometimes drastically. But when we see prices go from a baseline to way up and then way down in a three-month span, we get a little skeptical. We look for suppliers that buy in a manner that avoids that unduly nervous pricing.”

Justus advises that suppliers who deal with big builders be flexible enough to conform to the builders’ paperwork conventions. "It makes it easier for us to compare bids,” he says. "Don’t submit your own form, as most builders will give you a form to fill out.”

David Weekley Homes is purchase-order driven in their systems; everything hinges on, is referenced by, and gets started by initial purchase orders. "We expect our suppliers to conform to our system and we’ll train them on how to do that—it usually takes less than one day,” says Justus. "That makes sure we have timely and accurate paperwork on our end, and it helps the supplier get paid on time.”

Justus says that by and large, his company stays away from turnkey solutions offered by suppliers as they can get better pricing by separating parts and labor. The company does take advantage of those services in their new markets, when they may not have a labor force and the infrastructure in place to do things themselves.

But he does have advice for suppliers who offer turnkey delivery, installation, and warranty services: "Break out parts, labor, and profit on your bids. It’s not about knowing how much you’ll be making on the job—we don’t begrudge anyone a profit—but we have to see a little more than one number on a bid,” he says.

Brett Brown, Regional Purchasing Manager Choice Homes Headquarters Arlington, Texas Markets Several communities across Texas and Georgia 2006 Closings 2,842 single-family homes

Not surprisingly, Brown names price and service as the two main indicators he uses when he chooses a dealer for his supplies. And the No. 1 reason he’d take his business elsewhere? Late deliveries. "The quicker we can build, the better it is for everybody,” he says. "We absolutely don’t want to lose days in a schedule.”

And while Brown says it would be nice if all suppliers completely understood his business, he’s aware that many builders often don’t understand the suppliers’ side of things, either. He says that by understanding everything that goes into a supplier’s business and their supply chain issues, it becomes easier for a builder and supplier to come to workable agreements when price jumps do occur.

"We sit down and try to build relationships with our suppliers,” says Brown. "We get references, look at their pricing, and if we like what we see, we’ll try them in one or two neighborhoods. If that works well, then we’ll definitely begin to grow our relationship.”

Choice Homes also takes advantage of installed services, something they entered into slowly to get a feel for how well the process would work for all parties. "We went with one company exclusively to install all our insulation and we got a big price break for that,” says Brown. "In the beginning, we used that company only for windows, and their track record with that was fantastic. We had no callbacks, their takeoffs were great, and everything was done on time. We figured if that service came through with their insulation, then we couldn’t lose.”

Brown does caution against trying to take on too much business from a big builder, lest LBM dealers become overwhelmed and their service slip. That’s a sure way to end up losing business. "We want them to tell us up front when they’ve reached the point of all that they can or want to do,” says Brown. "If they don’t, then what was once great service will suffer and we might not have a choice but to go somewhere else.”

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