“We partner on what I can work on margin over and above my operating costs and a portion of overhead,” Kohut explains. “But there’s a lot more that goes into it. Centex [Homes] has to do things to make that possible—we get the purchase orders way ahead of time, the pricing is set, there are no dry runs, the houses are ready [for delivery].Those things make it a true partnership.” In particular, Centex Homes’ Schedule Builder even-flow construction initiative, which attempts to minimize spikes and troughs in the company’s local and regional production cycles, has been a key driver in enabling TBS to reach astounding levels of inventory control and cost savings. “It’s almost like they are doing manufactured housing, but they are doing it in the street,” Kohut says of the Schedule Builder process. “They have a piece of land and come through and set the slab, the lumber comes, the [roofing] deck gets built, then we come.”
According to Kohut, the scheduling dependability resulting from the production system allows TBS to carry a lower level of inventory because the yard does not have to hedge against swings in production activity. TBS is outperforming traditional high-20s drywall inventory turns by approximately 25 percent, and return on inventory investment is in the high triple digits, matched by a fill level at 99.42 percent. “Our cost on inventory comes down and turns go up because as soon as we get a delivery trigger, we know we have 26 to 29 days to deliver that house. It has really made a big difference in our business.”
Centex Homes’ payment systems also have made a big difference to TBS, providing much needed cash as the fledgling distributor grew in the past three years. “Starting out a business, cash flow is numero uno,” Kohut says, “and we get a check [from Centex Homes] every single Saturday. You deliver the board, they hit their PalmPilot, bam—we get the check. That is tremendous support.”
Home-Field Advantage Centex Homes’ commitment to consistent scheduling is also beginning to differentiate the big builder among pro dealers in the Chicago market, where it closed approximately 1,000 homes in 2003. “Where other production builders may just give lip service, they try very hard to flatline their starts throughout the year versus the hurry-up-and-wait process that many of their competitors put you through,” says Harry Seigle, chairman of Seigle’s, one of metro Chicago’s largest pro dealers with 2003 sales of $205.8 million and a leading millwork and cabinet provider in the market since 1881.
While Seigle’s has been selling building materials to Centex Homes for years, the pro supplier’s existing exclusive market deal with Aristokraft cabinetry turned into big business in 2001 when Centex Homes made a regional single-source supply agreement with the Jasper, Ind.–based cabinet manufacturer. That business winding up at Seigle’s was hardly a case of luck, says Mike Wallor, Chicago division purchasing manager for Centex Homes. “When working in [a] local market and having to engineer and work with larger buying agreements, Centex Homes’ management and corporate people understand local flexibility,” he says. “When we start looking at a regional agreement with someone like Aristokraft, part of that agreement in its infancy is looking at their supply chain. A national deal could get us a great product, but if there’s a supply chain problem it costs us all kinds of money in the long run.”
According to Wallor, the dealer’s reputation and track record as a top-notch supplier assured the builder that distribution could meet their volume demands, and that belief was likewise supported by Aristokraft management that already valued Seigle’s as a standout supplier. Seigle’s, in turn, understands that 1,000 homes worth of cabinetry is not handed over haphazardly and has worked stridently over the past three years to exceed both vendor and customer expectations.
“At the risk of being immodest, our logistical abilities in millwork and cabinetry are well matched with what I think is the brilliant performance of our mill-work vendors and Aristokraft cabinetry,” Seigle says. “It’s a great combination of local expertise matched with excellent vendors from a national standpoint.”
But like Kohut, Seigle credits much of the single-source success to Centex Homes’ ability among big builders to streamline and simplify the theory of production building while adhering to the practical day-to-day logistical issues of construction supply and jobsite cycles. “They get their specs right the first time, and they take delivery on the date they ask for,” he explains. “You can load your trucks the day before and you know when the driver leaves Seigle’s there’s someone on the other end to receive those goods, versus the builder who says, ‘Oh gosh, we’re not ready to receive those goods today, the driveway’s not in yet—do you mind turning around and unloading and reloading?’ and all the incidental headaches that come with that.”
As a part of the business arrangement, Seigle’s communicates operational and strategic data back to Centex Homes, offers long-term price guarantees, and commits to virtually error-free and back order–free supply of cabinets to every Centex Homes subdivision in the Chicago market. The agreement is reviewed and renewed annually, and Seigle’s executive and sales team typically meets with Wallor and Centex Homes regional president Dan Star to roundtable issues, trends, and challenges about every six months.
“Everything is detailed in contracts that we signed at the outset of the partnership,” Seigle says, “but the measure of the quality and the success of the relationship is the fact that I have never opened the file on those contracts. I have never had to go back and reread them.”
