Custom job: as dealers position component operations to service contractors with more diversified and detailed home designs, the business is getting more complicated—and more profitable – How To Sell Components
Rich Binsacca
When dealers manufacture roof trusses or factory-built framing components to complement their core lumber and building materials businesses, the general rule of thumb for success has been to punch out the same trusses or panels over and over for the same bunch of tract builders. Simply, efficient production and repeat business breed profitability.
Don’t tell that to Rey Garcia. As truss division manager for Naples Lumber & Supply Co., a single-location, $34.8 million dealer in Naples, Fla., Garcia has prospered in a market of custom builders who continue to demand increasing complexity and customization from his component production operations. “We really don’t have the luxury of a production market here,” he says. “We have lots of long-time customers [but] not a lot of repetitive work.”
Despite going against conventional production wisdom, or perhaps because it serves the demands of its custom-builder market, Naples’ truss sales–including decorative and heavy timber designs–account for 25 percent of the dealer’s annual revenue and almost always lead to Naples getting a larger share of the entire house package.
Changing Times
While Naples’ success in producing custom trusses is perhaps rare among most dealers today, it’s a sign of the times that all component operations need to heed. It’s no secret that today’s new homes are getting bigger and more complex in design, and that tract builders are using “mass customization” and more complicated detailing to sell spec homes.
Meanwhile, many builders like the efficiency of swapping a stick-framed roof job for factory-built trusses to reduce cycle time and labor costs. According to the Wood Truss Council of America, roof trusses now command at least 62 percent of the roof framing market nationwide, nearly double that of rafters. Additionally, I-joists, wall panels, and floor joists also are gaining share against sticks.
New Demands
In the case of truss production, the combination of increasing complexity, larger homes, and higher demand has ramifications across the entire operation, from engineering and design through production and shipping. And, of course, sales.
An oxymoron if there ever was one, custom roof and floor trusses demand that dealers offer services beyond a standard component operation. “If you’re dealing with custom builders, you have to be in the game early, at the design stage,” says Garcia.
To that end, Naples employs an inhouse engineering and design staff that works with local builders and design professionals to create custom trusses. “It’s a big selling tool for us, especially with architects and engineers” says Garcia. “It’s not just `per print.'”
Often, he says, designers and builders will use Naples to turn their ideas into reality. “They’ll come in with a beautiful design and ask us to make it work,” Garcia says.
That kind of service, aided by computer engineering and design systems, allows Naples to make a few more bucks and/or margin points on each truss order. “Custom builders are less price sensitive than tract builders” he says. “Cost is an issue, but they won’t question it if the service and quality are there.”
Getting in on a home’s design up front also allows Garcia to manage production. “We require a final approval of the design before final engineering and production,” he says. “Our personal approach [to sales] allows any changes before that.” Once a truss gets in the production pipeline, however, it’s ready to ship in less than five days.
While it doesn’t use the most state-of-the-art equipment available today, Naples’ truss operation ideally suits the company’s market needs. Designed by Garcia, the pit-system operation–in which assembly workers (one of whom works from below, in a “pit”) are able to plate both sides of a truss simultaneously–is twice as fast as a typical roller-gantry operation, he claims. It’s also a cost-effective capital investment, allowing Naples to spend minimal amounts on the plant and on maintenance and upgrades to high-tech machinery, and thus capture higher margins on its truss sales. Its speedy turnaround is a big reason why 95 percent of builders who buy trusses at Naples also purchase the rest of their framing and building packages from the dealer. “We seldom sell just trusses,” says Garcia.
Additional Implications
In addition to more personal service up front, trends in truss manufacturing also impact the back end of the operation. “Because trusses have gotten more complex and bigger, there are transportation issues for getting them to the job and delivered undamaged,” says Frank Serpa, vice president and general manager of Schuck & Sons Construction Co., a two-location operation based in Glendale, Ariz., which evolved from a framing company in 1966 into a full-service dealer and truss supplier.
Schuck & Sons, for instance, recently switched to flatbed trucks and roll-off delivery after years of shipping its trusses vertically–thus changing how his crews load, stack, and deliver components. “The way it’s packaged together is critical,” Serpa says; noting additional costs for training his workers and drivers to adjust from loading a uniform pack of trusses to a carefully configured stack, and then easing them off the truck instead of craning them off of a flatbed. “You think it’s simple … until you try it.”
As a turnkey framing operation supplying up to 95 in-house framing crews at any given time, Schuck & Sons addresses not only custom residential orders, but truss requests from a variety of pro customers, including tract builders and commercial contractors working on projects ranging from hundreds of dollars to more than $1 million. “Since we do supply all of those markets, we’ll be there with whatever [components] they need,” says Serpa.
Indeed, serving commercial contractors with roof and floor trusses has proved a profitable niche for Schuck & Sons, but it’s a different sale than residential. “It’s a one-shot job,” Serpa says. “There’s no experience factor or repeat plans or elevations [like you have with tract homes].”
Compared to residential jobs, he says, commercial work also requires a more precise bidding and submittal process to win jobs. “The process is more formal, beyond just the price and engineering,” he says, noting that proving his crews’ qualifications and having calculations reviewed by an independent engineer both are essential. “You have to watch your Ps and Qs better.”
What About Walls?
While neither Naples nor Schuck & Sons has yet to get into the wall-making business to supplement their respective roof and floor truss operations, a few lumber dealers–among them San Francisco-based Building Materials Holding Corp. (BMHC)–have ventured into panelization.
Already serving its customer base with 21 truss plants, BMHC also operates some wall panel facilities to serve Phoenix and scattered markets in California. “Wall panels are a capital-intensive business and have traditionally been a tough way to be competitive,” says Russ Kathrein, director of strategic accounts for BMHC.
The main barrier to profitability with panels, he says, is that many companies looking to open wall panel plants wrongly assume that profits are in supplying product for very basic home designs. “You need to remember that a simple house already has low labor costs,” says Kathrein, thus discounting a key value of panelization. “There’s more potential for labor savings [using panels] with a larger house of medium complexity, especially in a production [or tract] setting.”
To that end, BMHC has been very selective in the markets and projects to which it supplies wall panels, and works only with its turnkey framing operation or affiliated framing crews to install the components. It also has discovered a niche in supplying panels for multifamily jobs and with selected tract builders. “When you can reduce the framing phase from 12 to three days [using panels], builders see the value,” Kathrein says.
In addition to serving multifamily projects on infill lots, where the building area is too tight to drop a load of wall studs, much less a Dumpster for lumber waste and miscuts, BMHC and other panelizers are squeezing value (and profits) with other wall panel advantages. Finished wall panels not only go up faster, but also are much more difficult to carry off the jobsite than a 2×4, thus reducing the potential for theft.
Panels also save cleanup and waste-removal costs, tipping the scales further toward profitability when considered against the additional flat labor and materials costs associated with stick framing. “Thinking that panelization will be efficient just because the walls are built in a factory is an oversimplification,” says Kathrein. “You have to control the entire operation and process, from raw materials to erection.”
It’s a daunting task that few dealers currently undertake. Overall, fewer than one-fifth of the 158 dealers and wholesalers that participated in the 2002 PROSALES Annual Survey of Leading Construction Suppliers currently operate wall panel plants, with another 15 percent planning to open or acquire such capability. That’s still behind the 36 percent that have truss plants. Meanwhile, adding or expanding manufacturing capabilities remains among the top five opportunities reported by dealers in the survey.
For its part, BMHC hopes to move more builders to its construction services model, a turnkey framing scenario in which the company coordinates the entire framing phase. “By acting as the framer and the lumber supplier, we can take out a lot of the inefficiencies,” says Kathrein, including scheduling delays and inaccurate takeoffs, both of which are helped further by the use of factory-built components.
That said, Kathrein and BMHC have recently witnessed a shift among production builders away from turnkey framing toward line-item materials and labor estimates. “Builders want more control of costs,” says Kathrein. “In some areas, they are suspicious that turnkey framers are padding their estimates and profits by bidding a single number.”
While Kathrein says that BMHC has built a trust with contractor customers using its construction services (or turnkey framing) model by being upfront with its numbers, the company will likely see a slowdown in new markets for the service, thus impacting its component operations toward more customization. “We want to move them [toward turnkey], but everyone wants something different,” he says. “[As a result,] component operations need to be sophisticated in delivery, quality, and production to meet that demand.”–Rich Binsacca is a contributing editor to PROSALES.
RELATED ARTICLE: Keys to selling components.
Consider the following points if you’re looking to develop a successful–and profitable–component operation:
* Address increasing complexity with dedicated design and engineering services.
* Invest in computer software to design trusses, provide accurate engineering calculations, and create precise production specs and layouts.
* Know your market and serve its needs.
* Look for sales opportunities, such as multifamily, commercial, and custom builders.
* Consider turnkey or installed framing to control costs.
* Coordinate sales efforts to turn truss buyers into full-service customers.
* Allow changes until final approval of the design before going into production.
* Make sure your trucks, equipment, and crews can handle complex products.
* Look for tight/infill lots and mid-market homes as potential sales opportunities.
* Promote the advantages of wall panels, including less waste and theft, to boost value.
–R.B.
COPYRIGHT 2003 Hanley-Wood, Inc.
COPYRIGHT 2003 Gale Group
