By popular demand: installed sales and components are commanding the attention of builders looking to shift more of the construction process upstream

Prosales, April, 2003 by Lisa Rabon-Clift, Pat Curry

It's no great secret that there typically is more profit in providing services than in selling commodity products. The IBM industry certainly is no exception to this rule if the past decade's continued growth of installed sales programs and component operations is any indicator. Supporting this trend, a full 91 percent of the 762 builder establishments represented in "The Builder Revolution" study reported that in the past 12 months they purchased an installed product in at least one of 14 prevalent industry categories (see Figure 14).

Moreover, pre-fabricated products and manufactured components hold dominant market positions in categories including doors, windows, and roof trusses, with 75 percent or more of the respondents purchasing these items from building materials suppliers (see Figure 15).

For dealers, offering installed sales, manufactured products, and components is a way to deepen relationships with contractors, especially large-volume builders who may be looking to bypass dealers and buy direct from manufacturers. Specifically, controlling a larger portion of the supply channel can help to tighten the bond with builders, but it also can land more responsibility and overall liability in the dealer's lap.

For example, concerns about responsibility are the primary reason Todd Stevens, president of Hacienda Builders in Phoenix, relies so heavily on installed sales from all of his suppliers for the 750 houses he builds each year. It provides him with a level of accountability he can't get otherwise.

"Our superintendent doesn't have time to go through every box that comes in," he says. "I can't have people just dropping materials off on site. Things disappear and you get finger pointing. [With installed sales,] if it's not there, everyone knows it."

Pluses and minuses aside, turnkey services are in full swing across the board according to the survey--and market openings and opportunities abound for dealers looking to fulfill unmet demand or grab market share from competing suppliers. In this regard, an interesting pattern can be seen when the results of "The Builder Revolution" are placed side-by-side with the findings of last year's PROSALES Annual Survey of Leading Construction Suppliers, an in-depth look at top dealers nationwide that is published each May. In last year's findings, 11 percent of the 158 participating dealers reported offering installed roofing, 13 percent offered installed framing, 23 percent installed insulation, 20 percent had programs for molding/millwork, and 26 percent installed locksets/hardware. Comparing these figures to the builder establishments represented in "The Builder Revolution," over the past 12 months, 70 percent purchased installed roofing, 71 percent used installed framing, 70 percent shelled out for insulation, 70 percent purchased installed molding/millwork, and 73 percent bought locksets/hardware installed.

Because The Annual Survey of Leading Construction Suppliers is completed almost exclusively by full-line lumberyards (90 percent), while "The Builder Revolution" did not differentiate between specialty installers and pro yards, the percentage gaps between supply and demand by category may indicate opportunities for pro yards to snag more market share, especially for savvy companies that are mastering the installed sales equation and gaining the experience to go up against specialty installers that have dominated categories such as insulation, roofing, and siding.

Even though builders are making widespread use of installed sales in many different categories, they did not rank these programs high when selecting a supplier. Only 28 percent of the respondents said they were important, ranking them a 4 or 5 on a 1-to-5 scale, with 5 being "very important" and 1 being "not at all important." When stacked up against 16 other criteria, installed sales ranked at No. 14, followed only by facility design/layout and e-commerce capabilities, while delivery, price, and relationship criteria topped the list. This is an interesting implication for dealers because it indicates that installed sales isn't a prerequisite for a builder doing business with a dealer; however, it's probably going to be an easy sell and an excellent opportunity to get more of the total package once they're in the door and satisfied with a dealer's core service offerings and pricing.

From the Ground Up

Overall, component manufacturing held more weight in builders' supplier selection criteria than installed sales, with 44 percent of the 842 individual respondents saying it was important. Over the past couple of years, there's been a flurry of growth activity in component and pre-assembled product categories, and it's moving beyond the usual suspects of pre-hung doors and windows and trusses. To track the activity in this area, respondents participating in the study were asked to indicate the component/manufactured products they have purchased in the past, plus the categories they would purchase if available, and those items that they have no interest in purchasing (see Figure 15).