Developing bolder business practices - Part 2
Published: 08 January, 2013
This month, our panel discusses the business of holding firm when it comes to prices and deliberates on where independents fit into the complex construction landscape for Part 2 of the Builders’ Merchants News/H+H Round Table Debate.
Lisa Arcangeli: Can merchants hold firm to their pricing when all about them others are selling building materials for silly sums?
Simon Clark: The thing I hate with a passion are price lists. All get discounted and it is easy for the builder to say ‘how much are you going to give me off the list?’
Tom Parker: No one can ever remember a net price, but they can always remember the discount.
Simon Clark: Price each job on what it’s value means to you. Don’t give away list prices for less.
Nick Walley: Do we need manufacturers with a specification team going out to get specifications…
Simon Clark: So that we can break bulk…
John Curchett: It depends on what the product is.
Nick Walley: You should be training the merchants to do that for you. They are your stockists and it’s their customers.
Bob Butler: Suppliers don’t trust the merchants.
Simon Clark: When we get a specification, say for a standard lightweight block, we will look at the market, offer alternatives and ways to get the benefit out of the blocks.
Bob Butler: How many products are there in your range?
Andy Williams: One product with a number of variations.
Bob Butler: And we are selling up to 40,000-50,000 products.
Andy Williams: Simon said that if he gets a specification for product ‘A’, he will offer ‘B’, ‘C’ and ‘D’ as alternatives. Our job as a manufacturer is to try to get a specification.
Nick Walley: If you are selling Ford cars, you go to a Ford dealership. You have to pick your dealerships better and look at ways of working with them.
Alan Boyd: You see one brand of board specified in drawing after drawing and you tell the customer ‘I can supply you with another nice shiny board that will do the same job’.
John Curchett: You can put a lot of work into a specification and this can still be broken. A different sales approach is to offer a build solution, rather than a product solution. As with some other build methods, it is about the overall benefit, rather than the individual products.
Andy Williams: It is not too difficult for any manufacturer to attempt to break another manufacturer’s specification.
Tom Parker: But you haven’t got anything beneficial to offer. Ninety per cent of the products we sell are commodity products.
Bob Butler: Like loaves of bread. We have to sell lots of loaves.
Tom Parker: It’s the uniqueness within a product range that we really need. That is what will stop our customers changing over.
We want to be seen to be supporting an option. Timber frame comes to us as a package and the large bulk of it is worth nothing to us as merchants.
Simon Clark: When you asked the question ‘do we need specifications’, were you implying that there should be more merchant representation?
John Churchett: I would suggest that the decision on what build method is used would normally not be taken by the buyer – this would be by the design and project teams. Most merchant/manufacturer joint calling would be to the buyer, which may not be the decision-maker as far as build method is concerned.
Bob Butler: But, John, you’re selling the car. We are selling the tyres, the petrol and the air freshener. Those are the things that people will shop around for.
John Churchett: If you can do a joint call with a buyer and he has technical knowledge, quite often some of the
benefits which aircrete can offer can make cost-savings elsewhere. As an example of a solution sell, we have recently been involved in is a 20-house Thin Joint project in East Sussex. We supplied the masonry package and provided technical support.
Due to the technical support, we were able to show that by using aircrete above and below ground, heat loss was reduced at junctions – linear thermal bridging. This enabled the builder to reduce his insulation requirements – and costs – and still achieve the code level requirement.
Simon Clark: What margin will the merchant make?
John Churchett: In this example, it was sold as a package and the margin was not eroded.
Nick Walley: If you don’t control your destiny, you could have different manufacturers going in and pitching their best solutions.
I see it as the merchant’s role to sort the supply chain out. The merchant should go in with the best solution for a building fabric, not the manufacturer.
Simon Clark: Do you feel that the relationships between suppliers and merchants have become strained lately? During a recession, you try to get as close to your customers as possible, keep the relationship going and work harder so that when you come out of it, you will be in the best possible position.
Nick Walley: An industry that has lived on the back of specifications will become order-takers, rather than sellers.
Andy Williams: If you stock product ‘A, then that merchant’s rep should go in and get a specification for product ‘A’. What happens when the builders says ‘I want to use product ‘B’? What stops the merchant from walking away and saying ‘I don’t want to know’?
Tom Parker: Builders’ merchants and their reps are ‘general practitioners’,
rather than ‘consultants’, because the range of products we have got to know about is enormous. Manufacturers’ representatives often only have one product to concentrate on.
Simon Clark: The merchant’s representative needs to look at where the site is, what the product is and make sure they are getting that right. Then, they will get the support of the supplier, because it shows you are doing the work. It will always be more successful and more profitable. And, it all comes back to the level of your staff. Only one in 10 may be able to do that kind of work.
Tom Parker: There are some areas of the market which are difficult and joinery is one of them. There is not enough know-ledge out there. At Parkers we have a specialist team of joinery experts in place to deal with this issue. We solve the problem and come back to the solution. There are enormous benefits in doing that. Customers are scared about upsetting us. If they take the work away and give it someone else, we won’t do it for them a second time. And, no-one else has the expertise to do it. Being able to do this adds value, but it is costly because we have find the right person and train them…but we can’t do this with bricks. We held CPD seminars at our offices and then, two years later, the contractor decided to change the specifications for something cheaper.
Simon Clark: Everybody sitting around this table has sold their soul to some of the brick supply [intermediate] com-
panies. We have allowed them to come onto the market. Merchants allowed the brick industry to slip through their fingers in the same way they did with insulation and plasterboard.
Nick Walley: You build your own Robust Details [certification scheme] and then that builder has got to buy from you.
Lisa Arcangeli: Should your suppliers work more closely with you?
Tom Parker: Suppliers cannot work with everybody.
Alan Boyd: And you cannot work with every supplier.
Simon Clark: When your rep goes in and chooses a product to put forward, you need to look at your market as a whole and see which suppliers are right for you to deal with and whether they can work with you.
Tom Parker: If you have good quality people in your company, then the manufacturers will hunt you out. They want to deal with the right kind of people.
Simon Clark: Everyone wants the easiest route to market. If you offer that, they will come and find you. Then, it will be up to the quality of your staff.
Alan Boyd: Specialised sales people help. We have a specialist bathrooms department where they do CAD designs, etc, so that the bathroom manufacturers and suppliers want to work with us.
Tom Parker: Having that kind of service in place means that your reputation is enhanced because if they don’t come to you, where else would they go? There is currently very little out there which doesn’t have a specialist department, be it for lintels, roofing or insulation…
Bob Butler: Merchants who offer specialist departments become specialists and that means they have more know-ledge across a narrower product range.
Tom Parker: What makes us specialists is our people. I sometimes wonder if our portfolio of products is too large.
Our product range is so diverse it makes it difficult to concentrate on any one sector. That’s the benefit of being a specialist who sells loads of just one product. We initiate marketing campaigns as best we can. But, the best way to do things is when the customer comes to us. It forces us to think.
Alan Boyd: Some distributors are widening their product range all the time.
Simon Clark: And some of these distributors are putting themselves in between us and the supplier. If I cannot buy direct from the supplier, then I’m doing something wrong.
Bob Butler: They exist because they can break the bulk that we cannot buy in and break. Unless you have central distribution for everything, there is a point when buying everything from a third party is more commercially viable than putting it to a DC and distributing it. Is it about fear? It is, because there is more supply than there is demand. When you have that scenario, the slice of the cake gets smaller. We need more merchants to go out of business and suppliers too, in order to reduce the size of the market.
Tom Parker: It wouldn’t take much for the construction industry to descend into chaos. The brick market is already
Alan Boyd: Most of the stock brick factories in the South East are on availability.
Bob Butler: There’s no haulage. There are not enough vehicles on the road.
Tom Parker: The sub-contactors have gone out of business. The rates have not gone up and the haulage companies have not been kept busy enough. Then, there’s the Euro 5 emissions standards. The new lorries are cleaner, but less efficient. They only do six miles to the gallon while the old ones did nine. That doesn’t sound like a lot, but it is one-third less.
Andy Williams: Rigids are now a specialist vehicle and they are being swapped for wagon and drag. These could soon become the specialist vehicle and everything will be shipped on articulated flatbed lorries with full loads at a time. That’s where the merchant comes in.
Alan Boyd: There’s a flip side to that. You see many merchants running larger vehicles – 26-tonnes and six wheelers – because that’s the intermediate size load between what you as a manufacturer would do and what we as merchants would do.
We supply to South London and the sites are getting smaller.
NEXT MONTH: Our panel examine how regs are impacting on their business for good and for ill. Look out for part three online in mid-March.
This article first appeared in the October issue of Builders' Merchants News.