Regardless of the reasons their customers diversify, LBM dealers and others along the supply chain must decide whether to play along, get ahead of the curve, or get out of the way. “There can be a lot of supplier shifting when a builder diversifies,” says Weiss.
Shifting Suppliers For Dallenbach Builders, venturing into light commercial projects such as small retail strip malls and low-rise office buildings didn’t require a whole new batch of suppliers and subcontractors. “Structurally, they’re the same,” says Dallenbach, comparing housing to light commercial construction materials and methods in his market. “It’s a pizza with different toppings.” The same can certainly be expected when builders or general contractors take on a remodeling job or broaden their offerings of new homes to different price points in the same market.
For Dallenbach, his LBM supplier (Boland-Maloney Lumber, a two-location, $40 million operation in Louisville), specifically, was already geared to serve his light commercial building needs. “They had access to treated lumber and heavier windows, maybe not as stock items, but with reliable sources,” he says, adding that the yard also offered in-house truss manufacturing and specialty millwork facilities. “They have the capability and capacity to deliver 98 percent of what we need.” Boland-Maloney, he says, was able to leverage its takeoff services to suit Dallenbach’s commercial ventures.
But despite what he knew about his supplier’s capabilities for residential jobs, Dallenbach initially assumed nothing regarding the yard’s ability to serve his commercial building venture. “It’s not an ‘Oh, by the way’ conversation with suppliers or subcontractors,” when builders diversify into other types of projects, he says. “You have to sit with them and go over the plan. Some [suppliers and subs] wouldn’t or couldn’t do it.”
Boland-Maloney, for one, was ready and willing. “This market expects suppliers to be able to handle new homes, remodeling, and light commercial jobs,” says manager Jim Dexter. “If you’re willing and take the time to do that, that’s how you make money.” For example, he says, the company’s truss and wall panel plant is supplying an increasing number of light-frame office buildings, some of which are built by and for residential builders.
Meanwhile, Boland-Maloney’s window and door facility attracts builders of all ilks, thus boosting the dealer’s account base and profitability—not to mention creating the same hedge against market fluctuations from which Dallenbach benefits.
For Weiss, he simply asks his suppliers if they can get the materials he needs for a specific job. “I’ll take them at their word, but if they continue to have difficulties getting something, then I’m going to go elsewhere,” he says. For example, Weiss became a de facto cabinet dealer after his regular supplier kept allowing Weiss’ homeowner clients to spend more than their allowances, forcing him to boost the price of the project. “I got tired of being the bad guy,” he says.
He’s also sensitive to suppliers that make a price appeal when cost is not his primary consideration, such as on remodeling jobs. “Price is not the main part of the buying decision for a remodeler,” he says. “Suppliers have to sell more than the bottom line on those jobs,” such as just-in-time or on-call deliveries of small or filler orders, offering showrooms for homeowners and remodelers to visit and shop, and providing a wider variety of products—if not in stock, then through catalogs, samples, and special orders.
A key consideration for builders and dealers, specifically between single-family residential and light commercial projects, is the ability to manage a different pace. “Lots of items have to be ordered early, at contract,” says Dallenbach, such as specialty hardware and hollow metal-framed doors that require eight to 10 weeks of lead time so they’ll be on site when needed (and ideally stored by the dealer in the meantime). “I have some space [to store materials], but my suppliers typically warehouse it.”
Applications for All Whether a builder’s diversification drives a dealer to follow suit or a supplier simply sees (and seizes) an opportunity out of its core customer base, diving into something new requires careful consideration—with lessons that apply to both builders and the dealers that serve them … or diversify themselves.
