Enforcing Regional Pacts
To get a better handle on their supply chains, big builders have been reviewing how much purchasing leeway they give their divisions, which until recently called their own shots at most companies. For example, despite having negotiated more than 150 national purchasing agreements, Weyerhaeuser Real Estate Co., the industry’s 15th-largest builder, still lets its five subsidiaries choose their suppliers. “It’s my job to create these programs and sell them to our divisions,” says Kevin Wilson, a vice president who oversees national accounts and supply chain management for Weyerhaeuser’s home building operations out of Los Angeles.
TOUSA has more than 100 national purchasing agreements, “and we try to drive the local execution of those programs,” says Vogt. But this builder spends less time worrying about what its divisions buy than on how they buy. It has given them better analytical tools and data so they can raise pointed questions with suppliers and contractors about the total cost of ownership, Vogt explains, including service, delivery, cycle time, and warranties. This allows the divisions to get beyond a supplier’s bid price to see what they are really paying for, and it’s possible that the highest bidder could win TOUSA’s business if it can demonstrate added value.
But the housing slump is prompting builders to retreat into a more centralized purchasing model. “We’re trying leverage our ‘spend,’ ” says Tony Callahan, senior vice president of national purchasing, planning, and design for Beazer Homes of Atlanta, which now has two primary national supply sources for doors, two for roofing, one for vinyl siding, one for fiber-cement siding, and this fall was looking for a single national housewrap source. Beazer chairman Ian McCarthy noted at the Credit Suisse conference that the amount of incentives his company has earned through national purchasing agreements increased to $2,100 per home this year from $439 per home in 2002.
Pulte, which operates in 27 states, has formed four strategic sourcing teams–for the shell of the house, mechanical products like HVAC, finished products, and supply chain management that consults with the other teams–that centrally coordinate all purchases. If one of Pulte’s divisions wants to buy from a source other than one Pulte designates, “it no longer has the autonomy to do so” without vetting that request through corporate, says Koblinski.
Two years ago, Standard Pacific Homes launched a purchasing initiative called 1Standard to re-educate its purchasing agents about buying. In October, StanPac took that program to another level when its 25 divisions voted on which supply sources they prefer for HVAC, paint, engineered flooring, appliances, door hardware, fireplaces, lighting, and windows. StanPac wants to pick one supplier in each category for each of its three regions. “Until now, the divisions were buying whatever they wanted to. I’m working hard to get us to act more like a single company,” says Scott Hearty, StanPac’s vice president of national purchasing operations.
No builder claims that centralized purchasing works for every product, especially when items like windows, plumbing, and electricals tend to travel through multiple distribution points before reaching a jobsite. And builders must remain flexible to address local variations in building codes and contractor preferences.
Layoffs during the downturn also have made it hard for builders and suppliers to sustain continuity in purchasing. “I know one builder whose Dallas division has had six presidents in seven years, and each imposed his idea of supply chain management,” says Clark Ellis, a principal with Raleigh, N.C., management consultant FMI. “That’s why things are such a friggin’ mess right now. The tide is receding, and you’re seeing the muck under the water.”
FMI works with builders, mostly at the divisional level, to improve their construction processes. It has found that builders lose $2,000 to $4,000 per house because of “inaccurate takeoff procedures, inflated waste factors, and careless use of materials on site.” The good news, says Ellis, is that more builders are embracing value engineering, which analyzes all aspects of home building–including purchasing, design, and construction–for waste reduction, performance, and lower cost.
