Now Is a Good Time to Review and Refresh Your Materials Supply Chain

In this ever-changing environment, it’s critical to enhance your supply chain with additional expertise and capacity.

Why? I see more and more owners of pro-sales supply businesses retiring and closing up shop because the next generation has no interest in running the business. I’ve seen great companies’ operations go downhill after being acquired by larger organizations less focused on builder and contractor customers. I know other great suppliers that have no interest in growing, content to maintain the status quo.

For these reasons, you need to identify and prequalify new materials suppliers on a regular basis. Consider the following sources to help reinvigorate and stabilize your supply chain.

• Manufacturers are a great source for identifying suppliers of their products. Start by looking on their websites; many have a link (often “Locations”) to where they operate locally.

• Distributors are a link above local suppliers in the chain and primarily represent and sell one or more building products to those businesses, as well as some large installers. As such, they not only know who stocks building products in your market, but which ones can best serve your needs.

• Building contractors. Ask your peers in the industry who supplies their products (though in this competitive market, don’t be surprised if some won’t share that information).

• Competitive site visits. Drive through other communities under construction and take photos of company contact information on supplier delivery vans and trucks. Stop and talk with workers about the suppliers they use. You don’t have to get out of your truck to find a potential new supplier.

• Local Better Business Bureau. Search online by membership category, distance, and BBB rating. It is always good to see what a company’s BBB rating is; if other people have experienced and reported problems with them, there’s a pretty good chance you will, too.

• Trade groups. Almost every construction industry sector has a trade group or association with a local or at least state chapter, usually supported financially by local suppliers (often called associate members or sponsors) that are easy to find on the group’s website.

• Group purchasing organizations (GPOs) typically have a list of suppliers with which they have negotiated terms and pricing. GPOs also are a good networking resource to find out which suppliers the members use outside of the GPO.

• Local home building associations (HBAs). Like specialty trade groups, local and state HBA chapters are a good way to network with your industry peers—and a great source for identifying new suppliers. In addition to associate members, most HBAs host events where local suppliers are invited to sponsor, present new products or practices, and mingle.

• Trade shows allow you to meet with several suppliers in a single day, and therefore are an efficient way to expand your supplier base.

• Industry conferences. Suppliers often attend and/or sponsor conferences. Take the time to meet with them to see if they’re the right fit or perhaps can lead you to others.

• Internet search. A simple internet search of suppliers in your market can sometimes identify a company that you didn’t already know. This method is a lot like searching for a needle in a haystack, as there are a lot of suppliers on the internet and many that aren’t capable of meeting a production builder’s requirements. Nonetheless, it is a potential source when others have failed or to supplement your research.

Narrowing Your Supplier List

Once you have identified a new source of supply, it’s time to prequalify them. Some builders don’t go this extra step, which is a mistake. Simply, if you don’t prequalify the supplier, you can’t go with the lowest bid without running the risk of paying more because of poor quality, missed schedules, extra charges, and other headaches.

Going with the lowest unqualified bid is just going with the lowest price, not the lowest total cost of ownership. Remember, price is what you initially paid for a product or service; cost is all the additional expenses associated with that purchase. If you do a good job prequalifying a supplier, then there will be minimal difference between price and cost.

To properly prequalify a supplier, you’ll want to run a business credit report from sources such as Dun & Bradstreet, Experian, and TransUnion. If a credit report indicates a supplier doesn’t pay their bills, they probably won’t be around long; better to know that before you are dependent on them.

In addition, meet the owners or at least the senior managers of the company. Are they people whom you trust to do what they say they are going to do? Ask them how long they have been in business and about the company’s five-year plan. Treat the meeting like you’re interviewing someone for a job, and consider these questions:

• How has their business expanded or contracted over the previous five years?

• What is their current area of focus?

• How many employees do they have, and how are they incentivized?

• How do they empower their employees?

• What is the average employee tenure and turnover?

• How do they train their employees?

• Would they outsource any of your work?

• Do they embrace lean practices?

• Do they embrace continuous improvement?

• What are their warranty costs as a percentage of sales?

• What are their lead-time requirements?

Also, ask for references from other, like-sized builders, and follow up with them. You would expect the references to be good; a reference with a poor impression says a lot about the company.

With that, go see their work and observe their behavior on the jobsite. Did they park where they are supposed to park and stage materials where they are supposed to stage them? Do they have the right material handling equipment, and are their workers wearing the proper safety gear? Do they get along well with construction managers and installers?

When you feel ready to issue the new supplier a request for a bid (or prequalification packet), include questions that will provide sincere and thorough insight about how they work and their ability to meet your expectations. Keep a separate checklist of things you want to look at when you are on the jobsite reviewing their work.

Identifying and prequalifying new sources of supply is a must in this environment, and these tips will help ensure you are aligning your organization with suppliers capable of meeting its needs.