Home building Essay

Submitted By mcain282
Words: 3828
Pages: 16

Procurement in the
Homebuilding Industry
Michael A. Cain
Florida Institute of Technology

1 April 2014

Abstract
In view of the consolidation of the homebuilding industry and of their position as leaders, large homebuilders have gained purchasing power. These companies have also perfected building techniques and have developed preferred business relationships with manufacturers and suppliers. Many large builders are looking for easy-to-install products, engineered wood products and more off-site construction. However, their strategies regarding business relationships with their suppliers are evolving and in many cases, not well understood. Many changes are occurring in procurement sources and arrangements, collaborative partnerships and the way information technology is used. In a survey taken back in 2005, a questionnaire was used to gather information about the way that large builders secure material. Twenty-four of the top 100 builders responded. The results indicated that purchasing agreements were usually short term based and that a professional dealer, as opposed to mom and pop operations were preferred. Procurement organization is much more than the traditional belief that procurements primary role is that of obtaining goods and services in response to internal needs. The objective of a professional organization should be to enhance customer service and improve profitability. To understand how this role is changing, we must understand what purchasing is all about, starting with the primary objectives of a world-class purchasing organization.
Procurement in the
Homebuilding Industry
Introduction
Significant changes are currently reshaping the business environment of both the wood products industry and its first-rate market, residential construction. Recently, the literature has been reporting on various trends such as consolidation, factory-built methods and value-added wood products, strategic partnerships, electronic business, and supply-chain management. Through my research and investigation of what I have been able to find, the largest homebuilders' have developed procurement strategies in the United States that are setting trends that have become more integrative than a short generation ago. The softwood lumber and the wood products industry, for example, are linking together to supply the homebuilding industry in ways that have never happened before. According to the National Association of Homebuilders, (NAHB), the U.S. housing sector is currently slowly recovering from the subprime meltdown of 2008 through 2009 (National Association of Homebuilders, 2014). The number of housing starts in the U.S. reached nearly 600 thousand units as of January 2014 and the construction industry employed almost 2.9 million individuals in 2013. Spending on private new housing units totaled $300 billion in 2012 (United States Census Bureau, 2013).
Despite high fluctuations which are tied to the nation’s economic wealth and demographic trends, growth in the U.S. residential construction segment involves increasing numbers of manufacturing establishments and employees, as well as increased revenues (United States Census Bureau, 2013). Given the intensive use of lumber and wood-based panels in homebuilding, the U.S. residential construction sector represents one of the world’s premier markets for manufacturers of structural wood products. In the average single-family home (2,272 square feet) or multifamily home (1,268 square feet), 90% of the beams used are wood-based (lumber, LVL, glulam, I-Joist, etc.), 80% of the materials used for exterior wall framing is wood, 75% of decking materials are wooden, and 80% of floor, wall and room sheathing are wood-based. In terms of end-use consumption, almost 60% of all lumber purchased in 2012 was directed towards residential construction 31% in new housing and 27% in residential upkeep and improvements (United States Census Bureau, 2013). Similarly, approximately…