Frontline supply: when it comes to inking national turnkey deals, production builders still need local supply execution

Prosales, Jan, 2004 by Chris Wood

Construction supply requires intermediaries. As an engineered wood products manufacturer executive once told me: "The alternative is to drop a railcar of I-joists at a jobsite and say, 'OK, you deal with it.'" The logistically impossible image of a railcar full of wood sitting on a cul-de-sac always strikes me when I hear that yet another production builder and manufacturer have struck a national "turnkey" supply agreement in which the supplier will oversee the manufacture, delivery, and installation of a product for a builder.

The announcements of such deals are prominent indicators of a broadening trend in the industry, writes John Caulfield in "Single Solution," an article on turnkey supply in the November 2003 issue of BIG BUILDER magazine, a sister publication of PROSALES. The overall big builder aim, Caulfield notes, is to reduce cycle time, paperwork, and (in some cases) liability, while at the same time upgrade the consistency of job-to-job product quality.

No doubt, in today's big builder universe "turnkey" is focused heavily on scale, suggesting that the largest suppliers and vendors have the capital muscle to surmount local market challenges by establishing blanket supply agreements at the corporate level. In June, for example, Masco Construction Services (MCS), a division of Taylor, Mich.-based Masco, reached an agreement to install insulation in 75 percent of the houses built by Pulte Homes over the next two years. "Our deal was a function of Masco's achieving critical mass on the installation side to accommodate our capacity needs," Alan Laing, Bloomfield Hills, Mich.-based Pulte's vice president of customer satisfaction and supply chain tells BIG BUILDER. Indeed, MCS' installation network now extends to 375 branch offices, 54 distribution centers, 8,000 service vehicles, and 16,000 insured installers, accounting for $1.85 billion in annual sales, a size that outpaces the install operations of even the most robust pro dealers in the game.

Regardless of infrastructure, however, challenges remain for anyone chasing big builder starts all over the nation. "We see a growing interest in turnkey, but not an overwhelming capacity," Luis Solis, national vice president of purchasing and logistics for Denver-based MDC Holdings/Richmond American Homes tells Caulfield. Richmond American. which will close 10,800 homes in 2003. still sees trouble on the installation side when suppliers measure success by margin rather than customer satisfaction, Solis points out in the article. Still other builders, such as Toll Brothers, report finding pricing inconsist from market to market.

For independent dealers, these challenges can be turned into opportunities to use their installation expertise to serve national manufacturers looking to improve local market distribution. "Just because someone is a great installer in Denver doesn't make lama a great installer in Chicago," Paul Dodge, vice president of purchasing and distribution for Centex Corp.--one of MCS' major customers--tells BIG BUILDER. "At the end of the day," Dodge says, "it's about finding the right local solution."

That's exactly why many pro suppliers have excelled in the supply chain. They are local solution providers that can bundle and install products that efficiently and cost effectively fulfill builders' needs. So even with national deals on the table, it stands to reason that many independent dealers still can remain in the game if they show their strength on the from lines.