Semi-formal supply chain

‘Specific brand’ versus ‘commodity’ products Source: Building Technology Incorporated and McGraw-Hill Construction

When the first government-funded study of building materials distribution in the United States got underway in 2006, researchers hypothesized that pro dealers would be the most sophisticated part of the supply chain. The LBM “distributors,” as the study called them, were downstream from the manufacturers but upstream from the contractors and home builders. So the researchers assumed that most lumberyards had formal, written policies and procedures in place governing product purchasing, replenishment, returns and delivery.

When the survey was conducted in late 2007, the researchers discovered that only 26 percent of the pro dealers respondents followed any written procedures. And when they got to the “Best Practices” part of the study, well, let’s just say the LBM supply chain had a few more surprises in store.

The final report, “Innovative Home-building Product Delivery,” was delivered to the National Lumber and Building Material Dealers Association (NLBMDA) this past March. The NLBMDA first conceived of the study through its educational and research arm, the LBM Institute, and then obtained financing from the U.S. Department of Housing and Urban Development (HUD) and its Partnership for Advancing Technology in Housing (PATH) program.

The aim of the study, from PATH’s perspective, was to identify opportunities to assist the home-building industry in developing innovative ways to get products to market. By improving this particular sector of the industry, PATH also hopes to help the affordability of U.S. housing in general.

On a practical level, the NLBMDA hopes the study will provide a mechanism for its members to develop insights into their own supply chain strengths and weaknesses. The study identifies and compares 45 distinct findings derived from a survey of builders, pro dealers and manufacturers of varying sizes in different parts of the country. William Whiddon, a partner at Building Technology Incorporated and the lead researcher on the project, will discuss these findings on Oct. 3 at the ProDealer Industry Summit in Chantilly, Va. Listed below are some highlights from the survey:


Overall, builders expressed little enthusiasm for using brand name products in their projects. The one exception was windows and doors: the majority of builders surveyed (60 percent) said branding was important here. Only 20 percent looked for special brands in house wrap, insulation and wall finishes. When it came to siding, trim, plumbing, electrical and HVAC, 33 percent of the builders surveyed said brands were very important to them.


When asked about the margins of their trading partners, 13 percent of builders described manufacturers’ margins as “very high” and 47 percent said “a little high.” A sizeable portion (60 percent) of builders thought that dealers’ margins were “a little high.”

Dealers who were surveyed said their contractors’/installers’ margins were either “a little high” or “very high” by a combined 46 percent. Of all the groups surveyed, manufacturers seemed the least critical of other people’s margins.


Half of the builders surveyed used fewer than 500 skus in their home-building operations at the site. In contrast, just under half of the dealers offered 10,000 or more skus for sale to builders. The median manufacturer produced only 75 skus.


Builders were asked to evaluate, in terms of attractiveness, five services typically offered to them by LBM dealers. The top vote getter was material take-offs and estimating, followed by project management and business administrative services, which tied for second place. Construction management and business financial services received a 53 percent and 40 percent “low attractiveness” rating, respectively, by the builders.


In general, manufacturers are more stringent regarding vendor performance requirements across the board when compared to pro dealers. “Defective merchandise policy” and “coordinated purchase order and packing list” are important concerns for both groups.

Best Practices

The survey identified 17 supply chain “best practices” and then asked respondents to report any they had put in place, intended to put in place or had no desire to implement. Results were broken down by channel and size of company:

Manufacturers had the highest level of compliance: 14 of the 17 best practices. More than 90 percent supported Collaborative Product Design, Engineering, Manufacturing.

Builders “accepted” nine of the seventeen best practices, led by “Spend Analysis and Supplier Performance” at 87 percent. They rejected five suggested best practices, including Enterprise Resource Planning (ERP) Systems (60 percent) and Supply Chain Event Management System (53 percent).

Pro dealers accepted only two supply chain best practices, led by “Inventory Planning, Analysis, and Optimization System” at 67 percent. Ten were rejected outright. Among those, the least favorite were “E-Procurement and Automated Sourcing (Tendering, Auctions, Contract Management), closely followed by ERP systems, RFID/Tracking Solutions and Supply Chain Event Management System.

Biggest challenges

All three groups, builders, dealers and manufacturers, were asked to voice their most pressing concerns relating to supply chain management. Although the responses varied, certain themes arose from the collected comments:

Manufacturers: “cost vs. quality”

Pro dealers: “availability of products”

Builders: “pricing instability”

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