Direct Purchases
Unlike CPH, most of the builders contacted for this article are buying some of their building materials directly.
Fischer Homes buys direct “whenever possible,” says Westerfield. McBride buys about half of the products it uses, which Baft says gives his company pricing protection. McBride also specifies everything it lets its contractors purchase, “right down to ICI 1290 wall paint,” says Baft.
Direct purchases are no longer confined to large production builders. In recent years, smaller custom builders have banded together to improve their leverage with suppliers.
“We bring A-list builders together with A-list suppliers,” says Smithers of CBUSA, who is seeing “greater emphasis” on purchasing by its members, one of which is Payne & Payne.
Says Tompkins: “We’ve seen big gains in our buying power, especially for lumber.”
Another buying organization is Builder Partnership in Littleton, Colo., which started two years ago. It has 75 members in the United States and Canada that last year built about 22,000 homes. Builder Partnerships negotiates rebates for bulk purchases from suppliers of 60 different products, as well as allowances for model homes and design centers.
“When we got started, the market was still good, and it was difficult to get manufacturers on board,” recalls CEO Glenn Singer, a former executive with CertainTeed. “Most manufacturers used to focus on the top 25 builders and didn’t know our builders. Now, with conditions being what they are, they are looking for business where they can find it.” Singer thinks his network’s membership could grow to between 100 and 125 builders this year.
It appears that builders’ inclination toward buying directly from suppliers is benefiting consolidators within the pro dealer sector. Smithers points specifically to Stock Building Supply as a supplier CBUSA favors because that dealer assigns a national director, Mike Hunsaker, to work with custom builders exclusively.
“They continue to try to figure out ways to help us open in certain markets,” says Smithers, whose network recently expanded into Denver.
ProBuild is the only dealer among 33 suppliers listed as preferred vendors by Lennar, the industry’s second-largest builder, for its “Everything’s Included” homes. ProBuild supplies lumber and wood trim to Lennar, which built 33,283 homes last year, almost all of them Everything’s Included.
Jennifer Auer, Wieland’s vice president of purchasing and pricing, speaks of ProBuild as “a great example” of a supplier that can offer her company multiple product lines in several markets. “We deal with fewer [purchase orders], have a one-stop-shop option, and are eligible for rebates and discounts,” she says.
Arthur Rutenberg, which leans toward large pro dealers to earn rebates it can use to market its franchises, has also established about 62 national account programs with five levels of vendor participation. National account programs have long been popular with large production builders, which have the purchasing clout from the homes they start each year to make such deals worth their while.
But not every builder embraces these kinds of alliances. Auer, for one, is ambivalent about placing all of Wieland’s eggs in any single supplier’s basket. “You don’t want to be locked into a brand that doesn’t make sense for one of your divisions,” she explains.
Auer and other builders also note that setting up direct-buy and national account programs is nearly impossible when two-step distributors have a stranglehold on certain product categories. This can “make it very painful for a manufacturer to go direct to a builder,” says Auer.
She points specifically to a pilot program that Delta Faucet entered into last summer with KB Home’s Inland Valley division in California. Under the program, Delta would have moved products to KB’s jobsites through Penske Logistics, which has a warehousing agreement with that builder. Less than two weeks after the deal was announced, Delta withdrew, citing “feedback from our valued trade channel partners…including distributors and plumbing contractors.” Other builders say that the giant plumbing distributor Ferguson Enterprises was particularly vocal in opposing the Delta-KB arrangement.
