5 Ways Home Builders Can Use AI for Purchasing

This article first appeared in the November/December 2024 issue of Pro Builder.

If there is any function within a home building operation that could benefit from the application of artificial intelligence (AI), it’s purchasing. Whether it’s contract management, data analysis, demand planning, material expediting, or leveraging talent, AI can help improve effectiveness and efficiency. Here’s how ...

1. Using AI for Contract Management

Every home builder I know spends resources managing contracts, making sure pricing schedules are accurate and comprehensive, scopes of work are signed, turnkey installer-supplier information is captured for lien wavers, and so on—information that’s critical in trade partner agreements and often needed for change orders.

Once accuracy is confirmed, these contracts need to be electronically filed and archived, a time-consuming and redundant task with a lot of back and forth between the builder and installing contractors.

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Now, using AI, contracts can be sent out, scanned for accuracy, and reminders set for signers and followed up on so contracts are returned in a timely manner.

AI also will be able to pull specific information from these contracts and send it to the appropriate department before archiving, such as supplier data to Accounts Payable to secure lien wavers, signed scopes of work to the Construction department, insurance info to Risk Management, and complete contracts to the legal team.

AI could also track contract expirations and send reminders to specific purchasing professionals well in advance. It could be used to track price-lock expiration dates and inflation caps, monitor change orders to ensure increases don’t exceed agreed upon limits, and keep track of actual costs to budget, as well as highlighting reasons for slippage and other discrepancies.

2. Using AI for Data Analysis

AI is able to compare pricing for a specific cost code for a particular material supplier or installer across communities in the same market. But it also has the ability to compare pricing across all material suppliers and installers in all markets and then highlight any anomalies.

It could do the same thing with cost codes and draw schedules to ensure data integrity, and it could track option costs, sales prices, and absorption rates, as well as recommending sales price changes that optimize volume and margin.

AI could compare option prices online to make sure your pricing is competitive and analyze warranty costs and field purchase orders to calculate a more holistic cost picture that purchasing professionals can then use in the sourcing process.

The technology can also evaluate material quantity take-offs and provide purchasers with information about specific areas where too many materials may have been charged to the job. With that, AI could evaluate trade performance, such as cycle time (however you define it) and even recommend replacements for poor performers. It could compare field purchase orders to scopes of work and identify areas where a task was paid for twice—better yet, it could do so in advance of payment and prevent the error from occurring in the first place.

I think the key, from a data analysis standpoint, is to have the machine manage and track millions of records and let the purchaser know which records are an issue. We spend too much time trying to make our data as accurate as possible—a habit that often involves poring over lengthy reports looking for the proverbial needle in a haystack to identify records that need attention.

AI could manage exception reports so purchasers need only look at the records AI thinks are wrong. Consider the impact on audits AI could have! Imagine looking at a sample set of data instead of every record. AI will have that power.

3. Uses for AI in Demand Planning

To forecast future sales, AI could analyze data—macroeconomic, seasonal, and sales trends—then take that information and project estimated labor hours per trade category and highlight future bottlenecks before they slow production. It also could analyze material requirements and get ahead of potential shortages.

4. Using AI for Material Expediting

The supply chain woes caused by the global pandemic saw most home builder purchasing professionals and many sales professionals add “material expediter” to their job descriptions. To find sources of products that would be delivered at scale and on time, they called product distributors, looked at competitive products, and scoured the web for back-ordered materials to keep construction moving forward. Then they communicated their findings to installing trades and field managers to adjust schedules.

AI will be able to do all of that, allowing purchasing and sales folks to get back to what they do best. Right now, though, the technology isn’t quite ready and remains expensive, but the prospects are exciting.

5. AI's Role in Finding and Leveraging Talent

I know some people are concerned about whether AI will replace jobs or affect how jobs are done. Frankly, there aren’t enough purchasing professionals to go around in our business already, and some recruiters won’t even accept an assignment to fill those positions.

I don’t think AI will replace a talented purchasing professional, but I do think jobs that involve more mundane tasks—data entry and data analytics, specifically—are more vulnerable to AI.

Even so, the folks doing those jobs are often talented people capable of doing more but who don’t always get the opportunity to break free from the mundane. If AI could unburden them, they could add value in other areas while enjoying a greater level of job enrichment, likely reducing turnover related to burnout or dissatisfaction.

To get started, think about what tasks you would like AI to tackle and reach out to your IT department to see how they can help make it a reality.

I coined the phrase “transactional automation” to describe repetitive tasks AI can help automate. Think big picture. Think return on investment. Maybe start with a small, relatively simple task (but one that would free up resource hours in your team) to ease you through the learning curve.

Ignoring AI is not an option; it’s here to stay and its capabilities will only increase. Some of your largest competitors are already making advances with AI technology, and it would be dangerous to fall too far behind. Embrace the change that isn’t just coming but is already here.