Strategy Z and Opportunity Lost
On a cold, blustery March day in a medium-sized Eastern city, my colleagues and I were running day two of our week-long deep-dive for homebuilders into waste eradication we call the “LeanBuilding Blitz.” With a 10-member builder team for the entire week and 23 suppliers and trade contractors participating in 1-hour sessions each, it is a highly intensive experience. The “LeanBlitz” typically produces 150 or more improvement ideas, all vetted for dollar impact on both suppliers and trades, degree of difficulty for implementation and influence on marketing. To date we have had more than 250 LBM dealers participate and it so happened that this builder scheduled their two primary dealers back-to-back.
The Alpha and Omega
The first dealer rep, we call “Andy” from “Alpha Supply” arrived alone, despite our explicit instructions to bring a couple of associates along. We have found that really helps not just with answering questions but easing the pressure of having all the focus on one person. He was a bit edgy. He talked fast, clearly nervous, and after ten minutes in, it was apparent that his strategy was to go into great detail about a few things that collectively amounted to very little. Our field consultants often refer to this as “the water sandwich.” When we gently prodded him about savings opportunities that might be discovered in product or process, he was continually evasive. In this particular builder’s houses, we noticed considerable waste in lam-beams, truss, floor joists and dimension lumber, all of which added up to a couple of thousand dollars of potential savings. This was not asking the dealer for price concessions of any kind, but asking them to help the builders be more efficient with what they did purchase.
Finally Andy threw up his hands in frustration. “Listen guys,” he implored, “No doubt there are things we can do, but if I come here with ideas that knock $1,000 off my gross sales with you, at 100+ units that’s more than $100K this year, my boss will have my lunch. To him, all that matters is the gross sales line.”
The room fell silent. Finally, the VP of construction spoke up. “So Andy, you are saying that part of your profit plan is selling us things you know we do not need, and you are OK with that?” Andy was crestfallen, near paralysis. He stammered a response, “OK, look, let me see what I can do, but it’s going to be a tough sell to my boss.” Andy slinked out of the room with his proverbial tail between his legs, and he could not have been too happy to see a contingent of five arriving from this builder’s other big supplier, Omega Lumber.
In addition to Oscar their sales rep, Omega brought their estimator, the yard manager, their accounting manager and the owner. Oscar declared, “We’re excited and we’d better get to it because we brought a lot of ideas. We think we can help you save $1,200 per unit!” With that they all pitched in and described 15 specific ideas that ranged from eliminating headers where none were required, to re-sizing others that were well beyond code, to eliminating excess jack studs and king studs and cripples to reducing the size of joist hangars and even eliminating others and some significant savings on trim. They also brought along plans of a few of the builder’s best-selling models and showed where they had found savings. Finally, they talked about what it would take to reduce the excess trips to the job-site, which would both help the builder’s schedule and save the dealer a ton of cost. Toward the end of the presentation the VP of Construction spoke up again, saying that he appreciated how Omega had shown a willingness to forego some gross revenue to help the builder become more efficient, whereas some other had not.
The owner stepped in, “It’s simple guys. We get half your business now but our goal is to earn all of it. And right now we don’t provide you with several other products you buy from other places, such as windows, doors, shingles and siding. We want that business, too, but we know we have to demonstrate clearly why that is in your best interest. You have not asked us for any price reductions and we appreciate that. That is why we responded so aggressively. If we earn your trust and we become truly a partner and trusted advisor, it is far less likely you will look elsewhere.”
To say the entire room was blown away is an understatement. And within six months, guess what happened? Omega Lumber became the sole-source LBM dealer for this builder and yes, they got the business for windows, doors, shingles and siding. Omega was a company with vision and one who understood their role was to help reduce the builder’s total cost. Alpha was so set on holding onto the gross sales number they had, that it blinded them to opportunity. Omega won.
In my two decades writing monthly in the industry, I have been pretty tough on homebuilders. That is right and fair, because the ultimate responsibility for each house, each project, each community, rests on the builders’ shoulders. There is so much more builders can do to build better homes for the customers while eliminating the waste that eats up profits for builders, suppliers and trades alike. Yet there is likewise a great deal that can be done by suppliers and trade contractors. During our LeanWeek events, 23 supplier/trade firms participate and while most do an admirable job, to say a lot is left on the table is a gross understatement. Yet, after more than 4,500 supplier/trade firms participating over the past nine years it is striking to compare those 5%—10% that take it to the next level compared to the also-rans. These are the suppliers and trades that push on the builders to get into the 21st century, instead of the other way around. Examples abound, but let’s start with a memorable LBM dealer case to get our collective dander up.