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Strategy Z and Opportunity Lost

Last year I visited a move-up builder whose high-style homes were panelized. Their sole-source panel guys prided themselves on their precision building and delivering a high level of customer service. Yet what I saw was one of the worst wastes of wood—both dimension lumber and EWP—I have seen in my three decades working in the business. The excess jacks, kings and cripples festooned every wall and the oversized headers bordered on the outrageous. Their explanation? “It’s what the engineer specified.” The group of builder personnel seemed content with their response as if the panel company’s hands were tied. I was ready to explode. I had a follow-up question for the panel plant that I asked them with full sincerity. “I am just curious. Who writes you the checks for this stuff…the engineer or the builder?” Their rep stared at me, confused. Everyone stayed silent. Finally, he blurted out, “Well, the builder of course, but that’s not a fair question!” I told him I disagreed.

The Facts of Life, Homebuilding Edition
Here are four facts of life that drive tremendous waste in the LBMD world that everyone in the industry knows, yet seldom acknowledge.

  1. FRAMERS. There are deeply held beliefs by framers about how to build walls and support loads that are simply wrong, and they use up a ton of excess lumber. Challenge them.
  2. SOFTWARE. The software from every truss, EWP and connector manufacturer estimates high, and frustrating as that is, there is logic behind it besides just selling more material. Builders have a long history of going cheap and cutting corners, so it understandable to build in a fudge-factor. Yet we should never accept the initial calculation at face value.
  3. ENGINEERING. 95% of engineering firms habitually specify to the high side, for similar reasons. They simply cannot go unchallenged.
  4. CODES. The IRC is a one-size fits all approach that virtually always specifies high. Codes are ostensibly set to 250% of the calculated load requirement. Do we really need 300%? It is not unusual to find 500% or more! The IBC is better, but most builders don’t want to pay for an engineer plan, to their detriment.

Later, alone with the builder group, I explained how first they needed to reevaluate their relationship with their engineer. He was not just spec-ing a safe margin over code (read: too much material), he was demonstrating extreme neglect. This engineer in no way had his client’s best interest in mind. Who was the engineer working for, building products manufacturers… or the builder? Simple answer. Who wrote the check? He was directly responsible for several thousand dollars of waste per unit.

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I was at least as perturbed, however, with the panel plant. They admitted that these panels were substantially overbuilt, but had they ever walked through a house with the builder and pointed this out? The answer was no, as in “not our job.” This is a sole-source partnership? Is this a good way to make money? Not by providing the builder with a high-quality, well-built panel, but by doing that with 15-20% more wood than is needed? Some partnership. What happens when a competitive supplier comes along and gives this builder a lower bid? In this case, the panel guys earned the right if not the probability to lose the business. Shouldn’t the panel plant’s implied contract in a long-term relationship with this builder include looking out for him? Again, who writes the check?

Being Proactive
Many builders will protest that LBM dealers are just not willing to be proactive, meanwhile dealers complain builders don’t care about anything other than initial bid price. If a supplier does show initiative, they grumble, a builder quickly takes the idea and rebids it out to everyone. True, we have seen both of these scenarios and for the “typical” builder and dealer and I wish I could say it is unusual. Yet the best builders will respond with loyalty to dealers who take the initiative to truly look out for the builder’s best interests. So if you are a dealer, how do you reorient yourself this way? It starts with asking the right questions. Here are some high-potential ones to consider that will force yourself out of the box. Each one has the ability to reduce a builder’s total cost, which lessens the importance of bid price. If you can devise strong answers to just a few of these, builders are guaranteed take notice.

  • How can I improve a builder’s plans?
  • How can I respond better and faster to bid requests?
  • How can I reduce the builder’s schedule?
  • How can I improve a builder’s construction process?
  • How can I decrease a builder’s risk?
  • How can I communicate essential information better and faster?
  • How can I reduce or eliminate paperwork, ours or the builder’s?
  • How can I reduce return trips for my firm?
  • How can I reduce rework for my people or any others?
  • How can I educate builder personnel?
  • How can I reduce inspections?
  • How can I make a home more appealing to customers?

Tough questions? Good! Hard to prove to your builders? Better! How can I say this? Simple! Because if it was easy, all of your competitors could answer these questions as well as you, and what competitive advantage would you have? Ask your team these questions; determine which your target builders will respond to and set about proving you can deliver.

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“Strategy Z” means training your people to do these things proactively, not simply responding to builder bid requests at the lowest possible price. Doing this will take you a long way, in fact, it is the only way I know of to beat the nemesis of every LBM Dealer—the tyranny of pure price competition. In this arena, where the only thing that gets the business is bid price, you are merely a purveyor of a commodity and that is no fun for anyone. Get your team together, tackle the questions, develop a strategy and start in on it. It’s not just a choice, it’s your responsibility if you want to earn and keep the business.

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