“Our goal is to coordinate all of our [product] divisions to show one face to the builder, through our dealers,” says John Pagano, Owens Corning’s vice president of builder strategy. The dealers are urged “to get away from pushing products” and instead focus on solutions, such as creating and negotiating packages of products offered by the manufacturer’s divisions depending on builder needs and local market conditions. For instance, the dealer might create a single deal that draws on Owens Corning’s expertise in thermal efficiency and moisture control.
Builders are reorganizing themselves as well. Before it began aggressively seeking national supplier agreements, David Weekley Homes consolidated the way it identifies purchases. It used to have a dozen different “item files” at each division that together accounted for about 130,000 individual products. From that pile the builder created one master item list with just 30,000 items. “From a corporate perspective, it was difficult to know how much of any given product we were buying,” says Justus of the old, decentralized method. “Now, we’ve cleaned up our purchase order system, which helps our trading partners.”
Change for Good
Such efforts mean that local dealers that are part of a larger network, such as those managed by LP, Clopay, and Owens Corning, benefit from more accurate information at the corporate level. Because national companies ideally can procure or manufacture products with shorter lead times and economies of scale, dealers likewise ideally enjoy more flexibility in their negotiations on pricing and other terms when they make an agreement with the local division of a big builder.
And on the other end, the builders’ consolidation of data is giving their local arms more leeway in making efficient deals. Pulte and builders such as D.R. Horton and KB Home, which in 2005 closed 51,383 and 42,359 homes, respectively, are pursuing centralized purchases with “regional nuances,” as Sims puts it. LP is courting all three builders with national agreements, and Sims says the builders have forced LP to change its structure so it can operate both nationally and locally.
Huttig Building Products, with locations in 48 states and a hub in St. Louis, also is reining in its pricing structure and practices to address national accounts. “It was a painful, tedious, and cumbersome collaboration” among its branches and IT staff to streamline product descriptions, align SKUs, and set pricing zones within an electronic data exchange system, says Ken Kuehn, vice president of marketing and product management at Huttig. But he adds that the work resulted in a system that enables fast and easy adjustments and limits errors, taking costs out of the supply chain without removing a link or shifting responsibilities.
But don’t sit back thinking that one crank of the wrench is all that’s needed. People like Justus won’t let you.
Every quarter, Justus surveys a thousand company associates across every geographical and organizational line to evaluate the company’s trading partners on quality and service. Then he issues a report card to each partner, complete with each rater’s name and contact information. For every score of 6 or lower (on a scale of 1 to 10), the supplier or vendor is required to personally follow up with the builder’s associate and file a contact report and a plan of action with Justus to raise the bar going forward.
“We’re trying to get everyone on the same page” and do its part to improve the industry overall, he says. “If a supplier is fixing problems for us, they’re fixing them for other builders who have similar [supply chain] issues, and they get stronger and better as a result.”
On the other end of the chain, manufacturers are expecting more large-scale builders to work on their supply chains. “We anticipate that other builders will follow those we’ve identified as strategic leaders,” says Sims.
