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Scott Sedam, president of TrueNorth Development (www.truen.com), spends most of his time working in the trenches with builders, suppliers and trade contractors. His Lean Builder blog appears weekly at HousingZone.com. He welcomes your feedback at scott@truen.com.

A supplier never forgets

October 04, 2011

In the past month I have had the opportunity to present to and spend time with two different groups of 25 successful, independent lumber & material dealers. These suppliers have weathered the storm and although bruised and battered are still alive. In each one of their markets, significant competitors have been fed through the proverbial chipper and are no more. These survivors are smart, savvy business people. I was impressed by their dedication and knowledge, both of their operations and about how builders work. But if you want to get them riled up, bring up the subject of national builders. I merely asked one gentleman at my dinner table if he had worked with a particular national builder in his city and it was as if I had lit a fuse on a Titan rocket. Others quickly joined in. Some of their stories of national builder strategy and tactics were indeed, beyond the pale.

I don’t want to turn this into a “he said/she said” and the details were passed on to me in confidence. But even if only a fraction of what these folks told me is true, there are a lot of people out there who either simply do not understand ethics – business  or personal – or if they do, they look at themselves in the mirror in the morning and feel pretty ashamed. I am guessing it is more the former than the latter. But having said that, I have met many national builder directors and VP’s of construction and purchasing on the local level who absolutely know the right things to do – but their hands are tied by corporate people 500 or 1,000 miles away, who are managing by a very narrow set of criteria with little or no regard to local building reality.

Having spent nearly nine years as a corporate VP of a national builder, I know the temptations all too well. At corporate, it was very easy to lay on edicts and declarations to the field operations. “Thou Shalt Buy from Supplier X” – because we got a price – even though Supplier X could not perform in 1/3 of our markets. Or “Thou Shalt Cut House Cost 10%” even though the only suppliers left who could meet that edict were simply buying time, would ultimately fail and in the end increase our costs, the opposite of what was intended.

In the Divisions, there was incredible pressure to knuckle under and go with the corporate flow. At that time, I truly thought we were better than most, and I still do. But that was a long time ago and we were not in the throes of the worst housing recession since the Great Depression. I also understand that the homebuyers have rebid the builders time and again, thus it all eventually rolls downhill. But given the antiquated practices of this industry, the builder-supplier-trade relationship using Lean process and tools can produce savings far in excess of simplistic “cut 10% or we’ll kill you” strategies. But to get these savings requires strong connections built on trust. The behavior we are seeing out there inspires anything but trust – and these builders wonder why they aren’t getting the best from their suppliers and trades?

I wish these builders could be a fly-on-the-wall and hear the anger and frustration from these suppliers when they have let their guard down. It is sobering. If the builders could overcome their defensiveness, there would be much to learn. The surviving suppliers are smart and absorbed blow after blow and have made it through. Will there be any residual impact? The consensus seems to be that when things get better, they are going to get better fast and even now economists are predicting significant shortages of labor and materials within 3 years.

There are going to be a lot of suppliers and trades with long memories. Those who treated them with fairness, dignity and respect will have a distinct competitive advantage. Now would be the time to repair those relationships, if it is not too late.

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