Wielding the supply chain

Anyone who expected the usual supply chain collaboration discussion at the ProDealer Industry Summit was in for a surprise this year. ProBuild’s Michael Mahre and Standard Pacific’s Scott Hearty went beyond the “we need to communicate better” claptrap and talked about more controversial issues like cost visibility, demand forecasting and the unbundling of labor and materials.

ProBuild, the nation’s largest chain of building material outlets, and Standard Pacific, a production home builder with operations in eight states, work together in several markets. But that doesn’t mean that Mahre, senior VP corporate development at ProBuild, and Hearty, VP national purchasing operations for Standard Pacific, agreed on everything.

Not surprisingly, transparent pricing was one dividing line. Using the analogy of a shopping cart of groceries, Hearty said he wanted to know more than just the total amount at the bottom of the receipt; he was also curious about the price of the bunch of bananas.

Reflecting back several years to before Standard Pacific initiated its “1Standard” program, Hearty said he often had “no idea” what that lump sum he had agreed to was really buying him. “It was like a wall,” Hearty said. “I was at the mercy of my trades.”

Applying the supermarket idea to building materials, Hearty embarked on an effort to break out material and labor during the bid process. He also tried to better understand his suppliers’ unit costs and establish more direct buys with distributors and manufacturers.

As a result, Standard Pacific was able to realize substantial savings in framing, roofing and concrete slab work in three separate markets. Hearty’s purchasing agents stopped continually adjusting their pricing when the commodity markets fluctuated; now, they made adjustments three times a year—as per their contracts with their suppliers.

In his remarks, Mahre focused on the difference between “cost transparency” and “price transparency.” With the latter, builders know their suppliers’ margins and mark-ups.

“With price transparency, the fear is that you’re going to take the profit away from those who legitimately earn it. After all, we’re all in this business to make money,” Mahre said.

The ProBuild executive also pointed out that once profit margins become public knowledge, “you take away the incentive for competition.”

Hearty said he’s been able to save an average of $39,000 per house through direct buys, unit pricing for material and labor and other aspects of the company’s “1Standard” program. But there are still some things in the supermarket cart that remain a mystery to him, he admitted.

“If I could [standardize] the top 10 or 15 spends, I would be very excited about that,” Hearty said.

The audience needed little encouragement to participate in the 45-minute session, which also touched on better demand forecasting by builders. Asked where smaller LBM dealers fit into his supply chain, Hearty said: “The small, local [independent] can bring faster service to the builder. They understand the market. So it’s quality, speed and accuracy.”

Mahre wondered why the building material industry is so far behind on product data synchronization, which is being universally adopted by retailers and manufacturers. “Why is it so hard to standardize the identification of a doorknob in a builder’s plan,” he asked?

The answer, as always, was a lack of funding.