Yes, building materials. I’ve been working in the industry since 1997 and have seen the good, the bad, and the ugly. My hope is that this blog helps everyone avoid the latter two.
The average size of homes in the U.S. has increased over the last 40 years, the methods of construction and the materials used haven’t changed much. We’ve seen building products evolve over time, becoming more efficient to produce and use, but the basics remain the same.
The building materials supply chain has remained largely unchanged as well. Yes, it seems like a dealer gets purchased by a larger company every week, but product still flows the same way. It may come from China or Mexico now, but so does almost everything else we buy.
We haven’t seen a real revolution in building materials in a long time. The first hint of changes started with the use of safer products.
Lead laws and the banning of asbestos came first, for obvious reasons. The chemicals in pressure treated wood were changed in the early 2000’s to reduce arsenic levels in children.
Safety In the Home
More recently, the focus has been on products that outgas VOC’s into our homes. Tighter envelopes have reduced the amount of fresh air that gets into buildings, so our exposure has increased. Oil-based paints have given way to low-VOC and VOC free latex-based product. Formaldehyde has come under fire because so many building materials use it as a binder.
Alternate products gained attention with the Green Building Movement‘s first serious adoption in the early 2000’s. The creation of LEED standards and the NGBS made building green attractive for the first time. Johns Manville was the first manufacturer to introduce formaldehyde-free fiberglass insulation in 2002. Since then, multiple companies have followed in their footsteps finding ways to reduce VOC exposure from their products.
Safety On the Jobsite
With education of consumers on safer building materials came the education of workers in the industry. Work safety has gone from a common sense practice to penalty-laden, mandatory implementation. Hardhats, vests and tie-off straps have become standard even on residential jobs. Tyvek suits, respirators and HEPA vacuums are the rule when disturbing more than six square feet of lead-based paint. Penalties that were once paltry for the average business can now easily bankrupt them and put their owners in jail.
Changes In Procurement
With all the advancements over the last few decades, why hasn’t the supply chain changed? Outside of some tax-credit incentivized green product sourcing rules for LEED certified buildings, it hasn’t. The names and logos have definitely changed as the market becomes less and less diverse as big fish swallow smaller fish…but where is the innovation of the supply chain? Where are the changes in purchasing process?
Yes, now there are online purchasing options which save time and help with speed to market (usually), but what else? Online shopping is nothing new, and with building materials it’s clunky and difficult in many ways. Supply limitations, exclusive supplier/vendor partnerships, and shipping challenges limit how effective buyers can be using an online marketplace. They still need to have partnerships with local businesses to supply materials for their jobs, and not all suppliers are created equal.
There are also trade-offs on cost vs speed, purchasing goods sight unseen & the lack of a personal touch. Even Amazon hasn’t completely figured out how to tackle building materials supply, but they are trying. Tesla stands on the edge of automating the trucking of the supply chain, but the fundamental movement of product isn’t changing.
So, what changes are poised to come to building materials? Greener products with a focus on being safer for tenants in homes? Products that generate less waste on jobsites and in production? We’re already seeing that, and it’s not really disruptive.
If Amazon can figure out how to do large building materials – plywood, lumber, trusses and other hard to ship items – it will disrupt the marketplace, but it’s not going to surprise anyone.
My thought is that the next innovation isn’t so much on where we will buy building materials, but how buyers make decisions. Product isn’t getting cheaper, either – so it’s on buyers to make informed decisions to deliver the best value to their businesses.
For the last 100 years plus, building materials have been subject to the same procurement model. Product is manufactured, shipped to a dealer or a distributor, purchased by consumers, delivered to the job, and used. The expectations of what salespeople do in the industry has been packaged, repackaged, and refreshed for decades…without really changing anything.
Don’t get me wrong – faces and names change, brands innovate and improve products – but at a basic level most building material salespeople sell product without selling the value. To understand the value, the salesperson needs to understand the customers’ business model and priorities.
To that point, most buyers purchase based on price and familiarity without really looking at the overall impact of their decisions on the business from 10,000 feet. They do their job and meet their goals, are paid based on securing the lowest price. They bonus from staying on schedule and below budget and that’s what they prioritize. Overall value and ROI to the business as a whole don’t factor in past their paycheck.
So what happens when buyers are less involved than the person selling them product?
I’ve seen buyers spend ten hours pricing out under $1,000 worth of product to save $12.00. When you do the math, they just put their organization upside-down by around $300 in labor alone.
The building materials supply industry is due for a shakeup, and innovation around purchasing is needed. In my opinion, it’s one of the (if not THE) most neglected, misunderstood and abused pieces of the construction industry.
While we’ve seen procurement software hit the market with online buying marketplaces, this hasn’t really changed anything. The marketplace (and to an extent the accounting software that it plugs into) is built around the process as it’s been done for decades. Price and leadtime, price and leadtime.
Are price and leadtime the only concerns the CEO has with purchasing? Or is there more value that they want delivered from their procurement department?
Thirty percent of project costs come from materials alone. When you consider that it’s the single largest expense outside of labor, you would expect buyers to be subject matter experts. Unfortunately it’s been my experience that they allow their architect, designer or salesperson to be that expert.
Too Many Hands In the Cookie Jar
The problem with this is that really, none of these people should own more responsibility for the product used in a job than the buyer. Salespeople, generally speaking, make commission on what they sell. Their product will always be the right product for the job, as long as they need to put food on their table. It’s not a conflict-free position, thanks to vendor/supplier exclusives and other issues.
Architects get hammered with vendor spam to get products specified in their projects. The typical architect hasn’t ever worked with the product in question (or with the guy installing it in the field for that matter) and doesn’t really know more about it than the specs provided. They know enough to make sure it will work, but best overall value isn’t how they get paid.
Designers know how things look and feel, but they don’t own the price impact. Their job is to make it look good. Some designers inadvertently blow the budget for the project by selecting more expensive product than they need. It’s why “value engineering” exists. There’s no concern past the point where the owner loves the look and signs the check. The project manager has to make it happen.
The only way to change the market is to make the buyers more “dangerous” than their salespeople. They should be subject matter experts for their field teams and able to get just as technical as architects. They need to add value to the organization past earning their bonus for being below budget.
Too often I see buyers getting the cheapest product they can to fill an order, only to replace 2/3 of it a year or two later because it failed. Does the company take their bonus back for being under budget? Probably not. Should they?
Change is hard. People like the comfort of things they know and push back against having to start over. It costs money, it can effect efficiency (hopefully temporarily), and it takes time to perfect.
Over the last 20 years I’ve worked on thousands of projects with hundreds of clients, and very few organizations have “dangerous” buyers. Indeed, most examine other options until something goes wrong. While that comfort level is a salesperson’s dream, it’s also a CEO’s curse. In my experience, the larger the organization, the more money left on the table.
If materials are 30% of a projects’ budget and 10-20% of that is being lost, how much does that add up to in a year? 5 years? 10?
This blog is designed to help change the thought process behind how purchasing happens. Procurement needs to be more than just hitting a number and a timeline, it effects the entire operating budget of a business…it needs to be treated like it directly impacts the CEO’s pay stub.