March 2003

Distribution Channels
    Inner Workings of the Millwork Industry

Deep Impact
How Technology Affects the Millwork Supply Chain
by Allen Dyer

Envisioning the future supply chain models that produce and move the products and provide the services of our industry is one of the more important strategic exercises of millwork managers. Both supply-chain activities within our control and events we canít control can bring dramatic change to our businesses. At the very least, the functional responsibilities continue to move about among the supply chain participants, requiring a watchful eye. 

Communication and Data Management
Few will argue that the application of communication and data management technologies plays a central role in driving fundamental change to existing models and that supply chain leaders tend to be those who possess and control those technologies. So, watching early applications of technology may give us the first hints as to how future supply chains will be structured. 

A quick look back will remind us ďgray-hairsĒ of the impact wrought by computerized inventory management as it replaced the manual cardex, the facsimile machine as it displaced mail and electronic data interchange as it replaced printed purchase orders and invoices. While those technologies have been useful in reducing errors, shortening the cash-to-cash cycle and lowering per-transaction processing costs, they really donít approach todayís leading applications that go far beyond those now mundane basics. 

The Most Important Uses
Todayís most important uses of technology are those that enable fundamental change related to how supply-chain participants actually operate their businesses. Those applications that bring new operating methodology to one or more supply-chain partners naturally accelerate the pace of supply-chain change. Where does technology take us from here and how will it help shape the future supply chains of the millwork industry?

The End User Determines
To restate my assertion from the previous issue of SHELTER (see January/Februaryís issue, page 16), the end user of each supply chain is the determinant of that supply chainís success or failure. If thatís true, the technologies and applications to watch are the ones that help us push more value to the ends of our millwork supply chains, to the end users. 

A case in point focuses on the product and service chains that supply millwork to todayís retail consumer (as opposed to those who feed the pro or builder segment). As part of the overall building materials industry, retail millwork supply chains largely have digested the basic applications (inventory management by supply chain segment, performance measurement, EDI, etc.), primarily at the insistence of the home centers. 

The Home Centerís Role
Avoiding the diversion of thought as to whether that was a good or bad event, the point remains that by conquering these basic technology applications that manage and measure more items and transactions with more intensity but less human intervention, the home centers have leveraged technology into efficiencies of scale and competitive advantage. That scale makes further use of technologies feasible, which, in turn, brings even more efficiencies of scale. 

Now the home centers use those same technologies to affect end-to-end management of some of their less complicated supply chains and are leaning toward suppliers who can do the same in the more complex categories, such as millwork. As it is implemented, this vertical approach to supply chain management brings efficiencies to yet another plateau. 

As evidence, and at the risk of argument, let me point out that the home centers have almost certainly created new and additional markets for millwork products. If you accept the tenet that the end user ultimately has the only vote as to how effective a supply-chain is, then there is no question as to the positive impact this use of technology has had in pushing more value to the retail consumer. 

Non-Retail or Pro Segment
But what about the supply chains that feed the non-retail or pro segment of the millwork industry? We expect them to look decidedly different in method and function, but do they trail in application of the basic technologies that brought efficiency and competitive advantage to retail supply chains? I contend that they do, and if Iím right we can watch for the broad application of these basic technologies as an early indicator of leadership in the pro segment. Yet, for several reasons progress may not be as quick as it has been with the retailers.

It was much easier for the retail trade to fully utilize basic technologies and implement applications. In the retail trade, the end user fits a relatively standard definition whose needs can more easily be accommodated en masse as opposed to a still fragmented builder base that tends to demand more customized value propositions from its supply chains. Additionally, the logistics management challenges are more complicated for the pros. While supply chains to the major home centers must attach to fewer than 3,000 destinations, each new home presents a unique logistics model that is unlikely to be duplicated. But, as builders consolidate, fewer of them will produce a larger portion of our housing stock, and it will be easier for the pro segment to close the gap in the use of technology to more efficiently connect the opposite ends of our supply chains. 

A Fragmented Industry
My humble opinion is that the millwork industry rarely leads other industries in supply-chain refinement. For the most part, we remain a fragmented industry of relatively small enterprises, due in part to the broad diversity of product and methodology preferences favored by relatively small segments of the pro marketplace. 

Will this always be true? Will we begin to see more ways to create integrated end-to-end management of our supply chains to feed millwork to the professional builder and remodeler? 
Some early efforts didnít survive the shakeout phase of the Internet rage, maybe because they failed to remember, to paraphrase Bill Gates, that moving bits is easy while moving atoms can be more difficult. However, work on the pro millwork supply chains that feed homebuilders continues. Eventually, interested and compatible supply-chain participants will collaborate to create the magic of integrated end-to-end supply-chain management. When they do, you can bet that the application of technology will play a key part in the process.


Allen Dyer is president of ECMD Inc.




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