Suppliers to builders: 'Let's make a deal' - Brief Article

Home Channel News, Oct 8, 2001 by Andrew M. Carlo

Supply agreements, some exclusive, are becoming more common

NATIONAL REPORT -- Suppliers have been cutting special deals with their customers for almost as long as they've been making products. But until recently, manufacturers of building materials have resisted superseding their distributor and retailer partners to sell directly to builders without those middlemen.

That cozy arrangement could be changing.

Pulte has exclusive supply deals with General Electric (for appliances), Moen (for kitchen and bath products) and Sea Gull Lighting. Through a separate three-year pact, L-P is supplying engineered products to Pulte in Texas, California, Denver and the Mid-Atlantic region. On a regional basis, the home builder maintains exclusives with 70 to 90 manufacturers. "We've been doing this for nearly six years," said James Coffey, Pulte's vp-national purchasing. "That's just the way we do business -- for a term limit and a set price."

In August, Louisiana-Pacific, the Portland, Ore.-based company that's the industry's leading supplier of oriented strandboard and other construction materials, signed a three-year deal to become the exclusive supplier of engineered wood framing products to Pulte Homes, the nation's largest home builder, which operates in 44 markets.

Pulte expects this latest agreement with L-P to reduce its costs by between $3 million to $5 million over the length of the contract, primarily because it is able to lock in prices. But will those savings come at the expense of distributors and dealers that otherwise would have been handling these transactions?

Apparently, that's a sensitive topic, based on the number of dealers NHCN contacted whose officials refused to comment on the record for this article. The fact that dealers and distributors themselves have been negotiating special pricing and product terms with suppliers for decades also makes it harder for these companies now to complain when suppliers, in their own self-interest, jump over them directly to customers.

"It's only natural for [builders] to say they see an opportunity in buying direct," said Dick Rose, senior vp-logistics for Carolina Holdings, the Raleigh, N.C.-based pro dealer that is the nation's largest. "Well, they're free to do that. The question is: Can it be done?"

Regional deals prevail

As far as building materials are concerned, exclusive deals between builders and suppliers to this point have been limited. For example, only half of Pulte's floor plans are suited to L-P's engineered products, including I-joists, laminated veneer lumber and rim boards.

Centex Homes, the Dallas-based home builder, strikes exclusives with suppliers solely on a regional basis, primarily because national suppliers can't offer consistent pricing and reliable distribution in certain markets.

"The major thing that you have to balance is a program that works well over time, but also -- given the marketplace and the culture of builders -- can work any time," said Paul Dodge, Centex's vp-purchasing. "I think most companies have had a tough time balancing that."

For now, Centex maintains regional agreements with GE, Whirlpool, U.S. Gypsum, National Gypsum and Shaw Industries.

Rose contended that pro dealers continue to serve a vital function in the supply chain, not the least. being delivery of lumber shipments to the job site in a timely fashion. He added that his own company has diversified into value-added services such as truss and panel production to reduce cycle times and to operate more efficiently. "[Builders] can't not include us because the services we provide are necessary, to some degree," Rose insisted.

Dave Beattie, director of purchasing for Arnold Lumber, a two-yard pro dealer based in Rhode Island, said that, to his knowledge, his company hasn't lost any business with builders to exclusive supplier deals, nor has he seen much evidence of builders moving in that direction. "But it's something that's probably coming," Beattie said.

Local choice supported

Coffey said that Pulte would continue to look for opportunities to reduce its costs by purchasing merchandise directly from suppliers. "Every time we cut another deal, we save money. We're still at the tip of the iceberg."

Ryland Group, the Calabasas, Calif.-based builder, has exclusive national agreements with GE, Moen and Progress Lighting. And Ryland's vp-purchasing, Steve Dwyer, thought these arrangements raise Ryland's profile with a given supplier, which in turn responds more to any problem that might arise with the builder in the field. "At any point in time something can happen, [and] the national agreement helps you get the visibility," he said.

But Ryland also prefers to give its framers on the job site the flexibility to decide for themselves which building material suppliers to order from, and to base their decision on who's offering the best price. The reasoning behind Ryland's philosophy is that the company is not comfortable forcing subcontractors to work with materials they don't necessarily support. "People like to choose on their own, on their own analysis," Dwyer explained.