In some markets, like those with strong labor unions such as Chicago and St. Louis, “it’s hard to buy materials direct because that’s not how contractors want to do it,” says Mike Meyers, vice president of purchasing for Lakewood Homes in Hoffman Estates, Ill. Some builders also grumble that manufacturers protect distributors and dealers by funneling business through them. “We’d love to control more of the supply chain, but manufacturers are afraid of alienating wholesalers,” declares Eric Weesner, North American strategic operations manager for Bradenton, Fla.–based builder Taylor Woodrow. “Disenfranchising the intermediaries can be hugely problematic.”
But other builders are comfortable with—or have resigned themselves to—this distribution process. Novi, Mich.–based Crosswinds Communities has dealt for many years with Church’s Lumber Yards and Stock Building Supply. “They’ve always improved when we’ve asked them to step up,” says Bernie Glieberman, Crosswinds’ CEO. “They’ll panelize for us and even find framers when we need them.”
Del Mar, Calif.–based Brookfield Homes purchases virtually all of its building products through subcontractors, “but we specify what we use,” says Jase Prewitt, Brookfield’s purchasing manager. He notes, for example, that Brookfield often purchases truss packages from a division of local pro dealer Dixieline Lumber because “that’s the product we got our [code] approvals with. If framers want to go to another supplier they think might be cheaper, we let them, but they have to go through the approval process again themselves.”
The Great Price Debate When drywall prices skyrocketed last year, Roseville, Minn.–based Rottlund Homes negotiated an agreement with manufacturers and distributors to split the cost increase. Rottlund vice president of operations Mike Swanson says this was an example of the “true partnership” his company has established with many manufacturers and distributors. He adds that, with so many more suppliers offering installation and other services, the price of materials alone can no longer be the sole rationale for choosing one vendor over another. That doesn’t mean, though, that this builder has stopped being price-conscious. “We specialize in multifamily homes, and when you’re building a 60-unit complex, it could take a year to complete. The price you get today is one thing, but how willing are suppliers to lock in that price? It’s important for suppliers to offer pricing that sticks.”
Although many factors come into play, most big builders’ purchasing decisions revolve around price. More than half of the builders responding to the BIG BUILDER Study stated that “finding the best price” was a purchasing goal for 2006 (see Figure 2, page 61), and nearly three-quarters said they aggregate their corporate purchases primarily to get discounts. “It’s a huge part of the buying decision,” says Michael Collier, purchasing manager for Dallas-based Highland Homes, which typically bids out 30 days worth of building products purchases and wants suppliers to hold those prices for 60 days. Weesner of Taylor Woodrow says his company is constantly trying to lower its pricing, for example, by offering to purchase lumber, trim, and trusses from the same supplier to get a better deal.
Pricing definitely causes friction between builders and manufacturers. Consider that 60 percent of builders surveyed in the BIG BUILDER Study did not think negotiating price affected the product quality or service they received from vendors. But in a companion study of 156 manufacturers that also was conducted for the American Housing Conference, 70 percent of the respondents thought that the supply chain would have fewer kinks if builders stopped obsessing over getting the lowest price.
And even as big builder respondents were naming better pricing a goal, when the survey probed deeper, it found that lowest initial cost ranked second to last among 16 criteria that builders say most affected their purchasing decisions, far below a manufacturer’s logistical and delivery track record (see Figure 3, right).
This debate extends to rebates, which manufacturers think are more important to builders than builders say they are. Half of the suppliers polled said rebates sway builders’ buying decisions, but only 30 percent of the builders agreed. Anecdotally, the builders interviewed herein were even more ambivalent. Ralph Farrell, vice president of construction for Roswell, Ga.–based Ashton Woods Homes, says the “upside” of rebates is “they guarantee pricing. We’ve locked into some very good numbers with rebates on everything from roofing to door locks and shelving.” Brookfield Homes has rebate programs set up with four suppliers, but Prewitt says his company demands that rebates be “non-exclusive” (i.e., don’t require Brookfield to use the products for every project) and come with contracts.
Crosswinds’ Glieberman observes that rebates can shield distributors from becoming entangled in price conflicts between builders and manufacturers. “If I go to distributors and say, ‘I want Pulte’s prices,’ it puts them in a bind. But when a manufacturer pays us on the back end through rebates, the distributor doesn’t even know the supplier’s price with [another builder]. It’s a very smart move.”
Rebates might be “the icing on the cake” of any purchasing transaction, says Meyers of Lakewood Homes, but he and other builders still insist on lower upfront prices, and some think rebates are a nuisance. Berken of Transeastern Homes suggested that more than 60 percent of rebates aren’t even collected. But Hovnanian’s Voetsch said that rebates linger because builders and suppliers aren’t candid about discussing their true costs. “We would love to get to the point where we see rebates disappear. However, is there a strategic need for them today? Yes.”
