Jim Moody , CAE
President
Last week I mentioned my concerns about ProBuild as a competitor. This week, I’d like to comment on ProBuild’s new technology package and dig into the industry’s use of technology.
But first, I want to address comments made by some of you on last week’s entry. I’m thrilled that the column generated comments. Diverging opinions are welcomed – even encouraged. Thanks to all of you who posted. My goal is not to have the last word, and I certainly won’t pretend that I’m always right. What’s important to me is creating a meaningful exchange of ideas that provides some useful information and builds a sense of community. My only requests are that comments remain in good taste and free of personal attacks (whether aimed at me or other commenters). All commenters last week followed those guidelines.
Now, to the technology issue. ProBuild is spending millions on a new technology platform called ProEdge, according the May issue of ProSales. ProBuild has about 200 full-time staffers and 100 consultants devoted to IT and will spend about 2% of revenue (in 2008 that would have been about $88 million) on technology in 2009. The goal is to integrate the legacy systems of dealers acquired by ProSales onto one platform and then to provide data in more granular detail than is typical in this industry. Once the system is up and running, the technology spend will drop to 1.5% of sales, and the expected return on investment is 7-15%.
In contrast, ProSales notes that the majority of dealers in the ProSales 100 spend less than 0.5% of revenue on technology. Almost half spend less than 0.25%. And that’s the biggest dealers. My anecdotal experience tells me that even those low numbers may be generous for the entire industry.
I’m not suggesting that this is the year for a major technology spend (maybe it is for some, but I know so many of you are in survival mode this year), nor am I suggesting that technology is as important in this industry as it is in others. (In the ProSales article, one of the leaders at ProBuild notes that his previous experience at Fidelity Capital was in spending 22-30% of revenue on information technology. There would almost certainly be unfavorable return on that kind of spending in the lumber business.)
What I am saying, however, is that one member of the competitive pack is about to set the bar higher. This could quite possibly raise the expectations of customers. As you go forward, you might want to think about how you can get the most out of IT rather than viewing it as a necessary evil.
Have you invested in the training you need to get the most out of your existing systems? Do you have a website? Is it just a “brochure,” or can customers access their account through it? Can you track orders? What about online purchase orders? Can you invoice/receive payment online (assuming you want to do that)?
Craig Webb, editor of ProSales and a good friend of CSA, has posted a related article from Bob Wiltse on how to use IT as a sales generator on the ProSales website.
So, how do you view this information? Is ProBuild spending too much in an industry that has never seemed to need as much technology infrastructure as some others? Will they fail to see a return on the investment because the customers don’t care too much about technology? Is it wiser to minimize technology spending as much as possible?
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4 comments:
As a medium-sized wholesale forest products distributor, we have sold 84, Stock, BFS and ProBuild. Over time we have competed with Weyerhaeuser and Georgia Pacific (now BlueLinx) and a host of smaller companies. This blog reminded me of a convention I attended at the height of the dot.com boom. We were being told that there was silver bullet out there, aimed right at us by technology savvy guys who would destroy business as we knew it. As we proceeded with the program at eight man tables divided up to include some IT types with us ordinary mortals, one of the IT folks suggested that the time was at hand when a contractor would sit on the running board of his pick-up and order his framing package with his lap-top. The next day a sawmill would enter that order into their cutting schedule and produce the 2 x 10's that very day. Some guy politely asked, "what if the mill was in small logs that day?"
Then there was Georgia Pacific (distribution). If ever there was a company that had everything going for it, including resources, GP was it. Until they got talked into a totally different business model, we were told, by a consultant. They never really recovered.
In the Stock and BFS scenario, they have never solved the people problem. We have seen good yards bought, the current manager let go, and the customers desert in droves.
I've heard Hylbert talk and, as you say, seems a good guy. If he can solve the people problem and be careful with consultants, maybe it will all work out.
Pro Build has the resources and revenues to customize a system taylored to their applications. The smaller independent has to rely on the technology available in the "off the shelf" variety. The number of players is limited as is the level of detail available.I recently (you were there) attended a gathering of 5 of the leading providers in our industry and the result was they were all struggling to adapt to the melt down from housing just like us! Very few of us could afford to dedicate the dollars necessary to customize a system to our particular applications. We are religated to using what's available and working around the short-comings. Lets face reality. Our industry has to utilize the "hand me downs" from the auto parts and grocery industries!
Thank you for all the work you and your staff do to drag us into the next generation. Perhaps more articles like this one will help.
sincerly Phil Jarriel
I am wondering how much of ProBuilds money is being spent on internal needs. They have purchased so many different companies with many diff systems. They have to get everyone on the same system, where they know how much inventory of what kind is where. A company their size has to streamline purchasing where we can just go out back and look or go to our computer. Same with collections..same with A/P.
Jim Croome
I was in the building materials industry for about 12 years. I was a name in my major market in a specialty niche of this industry. I saw what IT and "consultants" can do and not do. Without going into all the details, suffice it to say that I was part of a team that took a 'mom and pops' organization from less than $10M/yr to over $40M/yr in 6 years and was the talk of the town. Company was real well run. Consultants (from Corp. America) came in and showed us a 'new' way to do business. All the little bells and whistles of IT came in and they were good products, services, and ideas. However, the IT part of it became the most important part, not customer service and satisfaction, or price (value based selling bull). The company contiued to climb to $58M but at a much slower pace and now is set to do less than $10M/year. All of this occurred in 6 additional years. Management all but stopped listening to the advice and ideas of the sales team and what was happening in the field with customers and the competition. In fact, when it was blatantly clear they didn't know what they were talking about, they would be offended from obviously being exposed. Teriminations or disciplinary actions, or threats were made. While part of the downturn is due to the economy, most of it is that the new management lost focus of their loyal customers, market conditions, and the untapped markets that professional sales people should have been tapping and were wanting to. IT, much like accounting, is a tool! Nothing more, nothing less. When management stops listening to what IT types tell them what will increase their sales and just start providing the features that are being requested from the field level in regards to IT, everything else will fall in place. The same thing applies to having accountant types running the show and looking at everything from an expense point of view as oppossed to an investment that will bring a return. In short, corporate America management and IT types have lost touch with reality and the human equation. Customers do not buy because of your IT capabilities or features. They buy quality and service and a fair market value by people who partner with them, ie consult and manage their orders. I know of no customer who would not perfer to pick up the phone or send an e mail and look for advice and confirmation their needs are being handled over some program. Customers buy price, quality, and service. If all those things are in place, then the customer buys consulting on the product, not from the company who has the best IT procedures. Customers could care less. What they want is the right materials at the right time at the right place, priced properly. No IT program will ever guarantee that! It takes a pro. My former company thought that customers were buying from the company. Little did they know that when the cream of the crop of former management and sales force left, that there sales would fall behind the way it did and they have become just another yard. But, they still have their new IT programs and their 'new' approach corporate management. Lastly and most important, IT or their people will never be able to tell you what customers are clamoring for currently or where the most aggressive tactics need to be employeed towards customer bases not yet tapped, or what the competition is doing. That takes a sales pro or local manager to do also. If Probuild can bring a clean running integrated IT program to use will be great, but management needs to realize it is just a tool and not the end all that IT people always make it out to be!
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