Wednesday, January 4, 2012

Building Material Retailers Can Add Value for the Contractor by Adapting Common Internal Processes

Competition has become fierce within the building industry because of the current housing situation. Contractors are now more reliant on price than ever, to secure jobs against peers in the industry and compete with the current foreclosure inventory that saturates the market. Contractors, like building material retailers (BMRs), are searching for ways to reduce costs, uncover core competencies to improve margins and sale services over competitors. Therefore, the new focus for BMRs is how managers and executive staff can evaluate and improve internal processes to aid contractors in achieving these goals and to create a win/win situation. Darrin Gilliam, CEO of Marvin's Building Materials & Home Centers acknowledges, "Making our customers' lives easier is the base of our business, and we make that happen in everything that we do"(Shutt, 2012, p. 22). A process that many in the lumber industry overlook for critique is the steps in use to assemble a lumber order for shipment to the jobsite. How can management approach this process to save the contractor time and money, add value and grow relationships? BMRs will need to gather information, assess the current process, and change the process to incorporate the needs of the contractor.

The building material industry requires a personal attention approach for service. Close relationships with customers are essential in maintaining current and future business. Jacobs, Chase, & Aquilano (2009) recognize, "the customer is (or should be) the focal point of all decisions and actions of the service organization" (p. 256). Sales personnel build the most rapport with contractors by working on a close one on one platform during projects. Thus, the communication channel already exists to gather information on customer preference. Managers and executive staff can utilize feedback from the sales force on customer expectations, and, from this information, incorporate an uncompromised reduction approach to redesign the order building process. The uncompromised reduction approach "uses knowledge of the customer to develop procedures that enable good service, while minimizing impact on the service delivery system" (Jacobs, Chase, & Aquilano, 2009, p. 269).

Generally, yard personnel assemble lumber packages out of habit and experience, yet without any knowledge about the sequence in which the customer will be using the material. Utilizing uncompromised reduction will gain managers the perspective to map an alternate process and train workers to assemble the components of a framing package in a way that will minimize the contractor's labor and time to unpack it. The time and money the contractor saves will equate to an increase in the perceived consumer value for the BMR, grow customer relationships, and create a competitive advantage.

Contractors build houses from the ground up, so assembling the components of a framing order should be in the opposite manner. Hence, adding a service blueprint for conducting this process to ensure consistency for every order, and seeking to add value where it is the most visible to the customer. For example, packaging the roof material first to queue this phase at the bottom of the stack in a bundle. Next, assembling wall material to queue in the middle of the package, and, finally, bundling the floor system last including the sill plate on the top of the order. Amassing material in this array enables the contractor to save direct labor costs on the job by not having to pay workers to sort through a random stack of product to find the material in need to assemble any phase of the project, thus neutralizing a bottleneck for the customer. Simply, changing the sequence of activities in the process can add value for the customer without sacrificing any efficiency within the process. However, obtaining customer input can allow managers to tailor this method to coincide with each individual customer's method of construction. Moreover, cost analysis permits managers to calculate whether further customization of the process at the individual customer level is beneficial to the organization, e.g. is further customization to achieve extra value worth incurring additional costs?

This is one example of many processes within BMRs that managers and executive committee members can break down and alter to add value for the customer. The framing stage of the construction is one of the most critical, "The quicker this phase is completed, the fewer weather-related delays you'll experience while finishing the interior of the house" (, 2012, para. 8). Any minor changes that can save time within this stage of construction can mean a significant favorable variance in the construction budget. Conversely, any delays or wasting time during this phase can cost the contractor and the homeowner time and money. Time is of the essence in construction because the labor is hourly, and the bank will not carry a construction loan on the books for a significant amount of time without converting the loan to a mortgage. Moreover, the bank will not convert the construction loan to a mortgage without a written document of completion by the contractor, and an appraisal of the final product. This part of the construction process is a vicious cycle. Therefore, it is essential for BMRs to manipulate internal processes to assist the contractor in working more effectively and efficiently. The outcome will include close mutually beneficial relationships to ensure future business, increase profits for the contractor and the BMR, add value for the customer, and each will enjoy new and useful competitive advantages.

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