Building Material Distributors & Dealers: What’s Your 5-Year Plan for Relevance?

If you and I have talked about the building materials industry before, then you’ve likely heard me describe the “path” between where products are manufactured and the buildings in which they’re installed.  This “path” represents a value chain and whoever owns the greatest part of it also owns the greatest potential for profit.

So how do you “own it?”  Do you want to own it?  Do you want to own only certain parts of it?

My answer is that a company should be paid for the precise number of steps along this “path” they own and execute against better than any other viable option.  That’s it.

But if you aspire to expand your footprint in the channel you’d also better be willing to exert pressure on those companies up or down the channel from you.

If you’re a two-step distributor, you either need to move up towards manufacturing or introduce services and functions to take you closer to the contractor or builder.  And do this with the full knowledge that many dealers will perceive you as a threat to them.  But there is also a lot to be said on how distributors can act in harmony with their dealer customers and reallocate what work each performs.  Distributors can offer and solve a great deal of burden, costs, and risks dealers have in terms of machining products for them, providing installation assistance as a service to their customers, and a dozen other areas of service and support.

If you’re a dealer and you want to expand and grow, you need to take more control of your supply chain, including buying direct from manufacturers.  And that of course will place your distributor relationship in jeopardy.

So you ask, “Why can’t this continue to work like it has for decades where the manufacturer, distributor, and dealer all participate in their piece of the supply chain to the builder?

To those who ask that question…I give you: Katerra

Founded in 2015, today Katerra ranks as one of the top 25 multifamily general contractors in the United States. They’re neither distributor nor dealer, but through buying direct, performing functions typically done at the distributor and dealer location…they’re both.

This is the “Uber” of the building materials and construction industry… impacting both how building materials are sourced and brought together, and ultimately how buildings are built.

Not convinced?  Watch this video and count the products and/or services of which you currently own the path.

Five-Year Relevancy Plan

This doesn’t impact everyone in the building materials industry.  Rural and smaller regional distributors and dealers serve a strong role.  The companies catering to the R&R segment should be confident in their current models.  And there are other models that are strong and viable.

But if you play in the single and multi-family production segment…what is your plan to remain relevant?  How will you remain the “supplier” of choice when the Katerra’s of the country (and there will be more) come to your market?

Over the next five years, how are you reinventing not only the product lines you sell…but the way they are sourced, inventoried, assembled or produced, shipped, serviced, and ultimately passed through to the end user?

When asked “what industry is Uber disrupting?” most people answer “taxis.”

No, that’s not it.  Uber is disrupting automobile ownership itself.

What is Katerra attempting to disrupt?

 

Don’t Go to “Camp Irrelevance”

What do you do to find new ways to create and add value to your customers, suppliers, and hopefully both–every day, week, and month of the year?

What do you do that is unique and can’t be provided by any other distributor or dealer?

And then what are you doing to build on top of that?

 

If you don’t have solid answers to those three questions, then welcome to Camp IrrelevanceCamp Irrelevance where apathetic middlemen go to die.  And even if you’ve got good answers, there still isn’t a guarantee things won’t change on you “just because that’s the way things work today.”  I know.  Me and 130 of my colleagues were personally put out of jobs 15 years ago by a manufacturer who, guess what—made the widgets and then put in place warehouses, trucks, sales reps, customer service, and AR–all things we did in our distribution business–none of which were unique. Sometimes things change no matter how good you are but you have a better chance if you make changes now.

 

Distributor Middlemen2

Imagine if there are 15 steps between where products are manufactured and where they are installed or used.  Distributors and dealers should get paid according to how many of these 15 steps they perform and the liability they absorb.

Now make a list of those 15 steps.  Then ask if they’re unique and that you can perform them materially better than a manufacturer or third party.

  1. Receive products at a warehouse.  Nope.
  2. Have the warehouse in the first place.  Nope.
  3. Stack products on racks or bins in a warehouse.  Nope.
  4. Do light assembly in the shop in the warehouse.  Nope.
  5. Hire a sales team to go call on the customer.  Nope.
  6. Have inside customer service people answer phones and take orders.  Nope.
  7. Get an employee to pull an order and load a truck.  Nope.
  8. Have trucks and deliver products to the right location.  Nope.
  9. Invoice the customer.  Nope.

…..and so on.  You get the point.

Unless you want to take on manufacturing, you’re probably going to want to to add more steps, more knowledge, more expertise, and more value closer to where the products are used.  Services galore.  And, you’re going to need to find a way to take costs out, increase efficiency, and compete with others that aren’t adding the value.  Those are the rules to play anymore.

And in these powerful, valued added services lays your competitive edge.  And your “lock” on being an invaluable part of the supply chain which gets the customer to say “I can’t imagine being in this business without you because of everything you do to help me, my business, my bottom line, and my success.”

ConAgra’s CEO on the Topics of Change and Innovation

Sean Connolly is the CEO of the company my wife works for…ConAgra. In this 3 minute interview with Fortune, he addresses the questions:

1. “Regarding change, how do you get everyone to stick with you as you’re trying new stuff?” Answer: “We let employees know we’re trying to build something that’s special, and everybody’s invited to participate in that. And when you feel like you’re part of something special, it can be incredibly exciting.”

ConAgra

2. On creating a culture of innovation: “The first thing we did was make external focus one of our company values…meaning we don’t want to spend our time on inter-office politics, PowerPoint presentations, and meetings–we want all of our team focused on the customer, emerging trends on what entrepreneurial companies are doing to delight customers better than the giants, etc.

Stages of Company Growth and Customer Focus

 

Connolly goes on, “But it starts with everyone from top to bottom, from side to side–have an external focus on our consumers, our customers, our competitors, and our communities. And that external focus goes a long ways toward jump starting innovation.”

Bravo!

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