Building a Future for Distributors and Dealers of Building Products

March 2006                                Volume 45,  Issue 2

Distribution Channels   Inner Workings of the Millwork Industry
Keeping the Pace
A Look at How to Deal with Industry Consolidation
by Allen Dyer

As I write this, I’ve just returned from the annual pilgrimage to the International Builders Show in Orlando. No one who attended will doubt that, in almost all aspects, the homebuilding industry continues to change. The product innovations alone would be enough with which to cope, but the use of technology in more homebuilding functions also continues to grow, and promises to be a quiet driver of even more change in the coming years. 

On the strategic front, the consolidation binge continues as even the consolidators themselves are consolidating. (I’ll digress to say an opinion that one thing that hasn’t changed quickly enough is the traffic and logistics management of a huge gathering like the IBS. If Orlando could somehow host just one major NASCAR race, it might quickly learn much about the particulars of crowd and traffic management.)

As some of you know, I am intrigued by the subject of industry changes and have a tendency to explore them in the context of the supply chains within which we participate. I’m guessing most SHELTER readers share my opinion that a respite from the rampant changes coming from every quarter would be welcomed. We all struggle constantly with the need to cope with the stumble-run pace thrust upon us; how to accommodate the coming changes ranging from the macro influences of interest rates and demographics to the micro concerns of our regional and local markets. 

We’re Not Immune

As an important subset of companies that make up the new housing and repair-and-remodeling industry, our own millwork industry is certainly not immune to the same dynamics that impact every other part of the immense homebuilding infrastructure. However, can we afford to slow the pace of change in the millwork industry and in our own companies? 

The resurgence of consolidation activity would suggest we can not. While some may doubt that some of the consolidations we’re seeing will create real supply-chain efficiencies in the long term, one shouldn’t question that they create wealth in the short term for their investors. This will continue until broad economic forces point out their strategic weaknesses and ultimately determine the winners and losers. 

Let’s explore that thought. Consolidation plays, in general, are at least partially justified by creating efficiencies of scale. Consolidation strategies at the builder level also create value by overcoming obstacles that are more difficult to address as smaller organizations (examples are the complexities of land development, finance and capital management). 

Nevertheless, the success of consolidations deeper within the supply chains that revolve around logistics issues (distribution) and the building products themselves (manufacturing) would seem to be more dependent upon creating and managing efficiencies of scale. At the core of that thought is the basic assumption that buyers of larger volumes of products and services will be rewarded with lower costs, resulting in more value being delivered to the end-users and a stronger competitive position for the consolidator. Most SHELTER readers are apt to be more intimately affected by these “supply chain” strategies than by the builder consolidation going on at the ends of those supply chains. 

Addressing Strategies

With this exercise conveniently dividing the consolidation dynamic into the two distinct sectors of “homebuilding” and “supply chain,” we can more easily evaluate our own business strategies and those of our millwork industry in general. As we address millwork supply chain consolidation strategies, I contend scale efficiencies are more difficult to realize through application of the “bigger-is-automatically-better” theory. While national builders can apply similar methods and strategies in multiple regions more easily than local builders, the supply chains that deliver the products and services they consume must vary greatly from region to region and even from locale to locale. 

So, consolidation in the supply chain segment of the building industry is more apt to need true operating synergies in order to create lasting efficiencies, a feat that is not easily accomplished without significant investment in technology and carefully structured operating processes. 

While we will no doubt see effective millwork supply chain consolidations based on sound operating platforms that can tap the elusive efficiencies of scale, there are other ways for millwork companies of all descriptions to succeed in a consolidated marketplace. One way is by participating in very effective consolidations of another sort. Within our existing supply chains, we can aggressively pursue relationships with stronger supplier and customer partners on either side of our own organizations. 

Aligning the strong with the strong in a single supply chain multiplies individual strengths; and making meaningful, long-term, two-way commitments allows both customer and supplier to focus their efforts on performing fewer functions. Such interdependent relationships are proven to be efficient and effective.

Differing Definitions

Another approach is to think outside the paradigm that considers our companies in the context of traditional relationships among manufacturers, distributors and dealers. To start with, in today’s marketplace that segmentation is almost impossible to define with consistency. Some refer to those who perform localized assembly functions as being “manufacturers” while others limit that definition to the creators of the components being assembled by companies they call “distributors.” 

Some refer to “distributors” as those who deliver housing components to jobsites; ignoring the term “dealer” others believe remains relevant. If we take down these descriptive fences and broaden our thought process to define all purveyors of millwork as being simply “supply chain participants,” we might encourage more outside-the-envelope thought process. Is there really some invisible barrier that stops “distributors” from manufacturing some of the products needed for their specific markets? 

Likewise, is there a rule that says those who traditionally have manufactured products can’t efficiently distribute them to dealers or even to jobsites under certain conditions? Considering ourselves to have opportunity only as a manufacturer, a distributor or a dealer limits our ability to innovate, lower costs and add value. The marketplace cares only about whom can do the job most efficiently.

Whatever our method, we must continue to seek out and embrace positive change, even if we’re succeeding today. Management guru Peter Drucker once said: “Get rid of successes that have outlived their potential.” If we’re truly dedicated to the future of the millwork industry we know today, we’ll have to embrace new ideas at the expense of successful traditions.

Allen Dyer is president of ECMD Inc. of North Wilkesboro, N.C. ECMD Inc. is a building products manufacturing and distribution company with production operations that include EastCoast Moulding, Crown Heritage Stairs, Arndt & Herman Building Products, ECMD Distribution and A&H Windows.


© Copyright 2006 Key Communications Inc. All rights reserved. No reproduction of any type without expressed written permission.