Following on from my Rant in the last edition of FTMA News titled Stop Leap Frogging the Fabricator, I had a lot of feedback. Some feedback was extremely supportive of my comments, whereas some of the timber companies felt I was a tad harsh and they believe their methods help the industry and they definitely don’t want to discriminate against the fabricator.
One timber company pointed out that unfortunately, the rant was about 20 years too late and that these types of channel deals started in the late 90’s with a flag ship builder in Sydney agreeing to a rebate deal from an EWP supplier trying to gain market share. At the time the incumbent supplier had hinged a lot of manufacturing R&D into this particular builder doing about 2000 homes per year and the end result was they took a significant hit in their revenue. This triggered deals across numerous builders in the 200 – 500 per year sector. This activity initially was met with distaste by other EWP suppliers and F&T industry, it was new, it was foreign to us and unseen in this space.
For some EWP Businesses they believe their error was that they stood still for far too long complaining instead of changing! They found themselves locked out of a lot of their market and a barrier to entry had been formed. Eventually all EWP suppliers invested in some form of securing the right amount of builder channel partners to underpin the significant investment in the industry which has truly benefited all.
I found the response from a number of timber companies to be informative and thought it was worth giving them a floor for a Rant Response so they could address each of the 6 issues raised. The responses are from a number of timber companies and I have tried to sort them in to the categories of the relevant issues.
1. Lack of competition, floor joist supplier knows they have a customer locked in for 2-3 years happy days!
The tender and review process that larger builders undertake is extremely competitive. All EWP suppliers participate and give it their best shot, and have to accept the final decision, win or lose. Builders want EWP suppliers to intimately understand their construction requirements, so they don’t have to chop and change too much – hence the long-term contracts. The builders drive this.
EWP suppliers also value long-term supply agreements because they allow the process to change from an “ad-hoc” quote-by-quote process into a design and supply process based on good design and better construction outcomes. Large builders have popular house types that repeat, so the EWP design department can hone the designs for best performance, best economy, and easy-to-build outcomes for the carpenters.
Any deal has consistent flat structure pricing as ‘one price fits all’ providing equality across all truss plants quoting for jobs and all contracted deals have an exit clause on price, behaviour and performance that has never been acted upon.
2. Complacency by floor supplier as no competition.
Large builders have very competitive pricing on pretty much all of the products in a house. Also, all F&T participants have LM and EA pricing from the EWP suppliers, so they have a say too….
During these long-term agreements, if a large builder is offered a compelling alternative by another product or brand, they may open discussion with the specified EWP supplier to explore opportunities. If an EWP distributor is complacent, e.g. servicing the reseller F&T poorly, this should be discussed, and if no remedy, the builder should be informed. Bad service costs the F&T reseller money, and we want our customers to be profitable with our products.
Complacency – NEVER. Rather the opposite which typically creates a day to day judgement on our performance due to the direct line of communication. Any complacency should result in a torn up contract and we always welcome feedback from fabricators if this is the case. The competition is there but it is higher in the supply channel so it has happened prior to the Truss Plant so there truly is a lot of competition happening
3. Fabricator cannot use any other floor supplier so best not upset them as they control pricing and could price fabricator out of work.
All F&T resellers are given opportunity to supply specifying builders. We do not deliberately disadvantage any participant, and are happy for any F&T to supply a specifying builder.
4. Fabricator stuck using a floor supplier that may be lacking in service, delays in getting quotes/design back thus loosing job as already given out, delays deliveries etc. (you would think one quote /design goes to all fabricators bidding however several designs may get done and quoted on).
Service levels are very important. It is true that F&T merchants could be caught “in between” with a non-performing specified EWP supplier. In such a case, the F&T should advise the builder of this non-performance and seek a remedy to the situation. On the topic of designs…..a delayed design would not result in an F&T losing a job…..if there are multiple quoting F&T merchants on one design, all F&Ts would be delayed the same. The only time that different designs are done for the same project is where certain F&T customers have very specific requirements, different from their competitors (e.g. different balcony details, different inclusions). We happily support this with additional design time resource as our F&T customers request it.
5. Floor suppliers don’t give same price on floor system to fabricators bidding on same job, this can disadvantage some fabricators and benefit others.
This speculation is not supported by the facts. It is true that not all customers buy for exactly the same rates for every single product – but all F&T customers who quote on a specifying builder’s work, will be competitive.
There has been an aggressive approach by Steel from within the F&T fraternity and without the direct line of communication and commercial relationship with the builder we would not have been able to defend a 9 year old agreement. Loyalty counts and we want that loyalty to be both ways, to the builder and fabricator.
The alternative to the existing model being commented about is that on every large builder project, multiple F&T suppliers would have multiple EWP suppliers produce multiple floor designs, selecting the cheapest quote every time. This tends to be a race to the bottom on price, and often the outcomes on site suffer from a price emphasis. Major builders know this, and they also know the true cost of errors and omissions on floor systems…..time consuming and expensive.
Every time there are multiple designs done for the same house, this represents significant industry duplication of effort. Signing long term agreements removes cost from the supply chain….however I don’t believe it reduces competition. It’s simply a case of being more efficient, cutting cost of doing business, and achieving better outcomes on site.
I think overall you can expect in different forms for this type of activity to ramp up well beyond floors and EWP suppliers across industry to secure long term TIMBER business.
In reflection to that early period of when this approach to market first surfaced, I only said to someone the other day “Perhaps 20 years ago the very first one was perhaps quiet visionary”, but hindsight is a beautiful thing, another term we all know too well.
I found the responses both in writing and in discussion from the EWP providers very genuine and I got the feeling that they all want to work for the betterment of the whole supply chain in keeping timber the preferred product used by builders.
It is important for fabricators to keep the communication flowing directly to their EWP providers and if you think something is not right, raise the issue as we are all working towards the end game of ensuring more timber is used within the construction industry.