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Building Material Distribution Industry: Increasing Margins
Many Lumber and Building Materials distributors are increasing the variety of products offered and reducing inefficiencies in the supply chain management.
As globalization continues to shape business practices, the lumber and building material industry is feeling the effects, as well. National building material wholesale distributors, mills, and manufacturers are all feeling the effects of international trade on their bottom lines and their distribution models, including consolidation and internal distribution, are being examined as these companies fight to stay competitive.
“The rate of consolidation in LBM distribution has increased over the last few years, driven primarily by large pro dealers and retailers looking to broaden their portfolios, gain access to attractive regional markets, and acquire specialty services.”
Source - Principia Consulting, LLC.
These changes to the lumber and building materials distribution industry are forcing businesses to self-assess and adapt. Here are three ways distributors are evolving to better retain customers and revenue.
Capturing a Larger Share of the Market
To retain a significant portion of the market, many distributors are increasing the variety of products offered. While there remains a place in the market for specialization, expanding products lines opens new sales opportunities. This might mean offering everyday products that contractors require from insulation to nail guns. This philosophy means your customer doesn’t need to look anywhere else.
“Distributors and dealers are also looking to “out of category” products to reach customers in brand new areas that are not traditional LBM markets.”
Source - Principia Consulting, LLC.
Due to the competitive nature of the lumber industry, this option has a notable upside. These “out of category” products can translate to higher profit margins and more consistent revenue streams, presenting new opportunities for growth.
Diversifying Through “Added Value” Products and Services
Since the home building and construction industry is on an upward swing, there is money to be made in providing additional products and services to meet the specific needs of developers. Think of these added value products and services as providing your customers with greater convenience and better service. LBM distributors have been expanding their products to include products like roof trusses and stairs to capitalize on the homebuilding market. These pre-constructed products offer convenience to customers and yield higher margins. Another way to stay competitive is to provide onsite delivery services. Retailers and distributors alike are providing delivery services through a mobile app or online ordering to retain business and to stay competitive. Today’s business landscape requires exceptional customer service and distributors should be considering how they could offer their customers more value.
Reducing Supply Chain Inefficiencies
Reducing costs and offering better products and services means distributors need to refine and perfect their supply chain management process. Eliminating redundancies will make a considerable difference in all stakeholders' bottom lines. Similarly, distributors need to provide exactly what their customers need without over or under purchasing.
The most effective way to increase efficiency is to establish complete cooperation between distributors and their manufacturers or mills. From production to customers fulfillment, LBM distributors can become a supply chain facilitator. Adopting a system that collects and integrates sales and inventory data, not only provides better inventory visibility, management and forecasting, but also strengthens their competitive edge.
Existing systems and processes are still operating the way they always have...phone, fax and email. This type of inefficient system is what will continue to impede margins in the building material distribution industry. Adoption of digital ordering and procurement processes is what will take this industry into the age of digital transformation.
This industry has lagged behind in digital transformation because there have not been technology solutions designed to facilitate this type of business. Now that technology exists for this type of business, the new challenge is to move the mindset of this industry from traditional to digital.
“Winners must respond to construction market trends while adapting for digitalization in the long term.”
Source: Roland Berger - US Building Materials Industry: North America building materials winners and industry outlook
Fear of change and disruption is the key limiting factor for any business to become an adopter of new methods of conducting business. By understanding what it is to where it can be helps resolve this fear. The visualization below demonstrates the state of unaware chaos and how adoption of technology can make the procurement processes more efficient.
Pivoting towards agile methodologies by adopting digital order management processes helps lumber and building material distributors keep up with the pace of change and increase margins.
The ability to see real time data on order volume by sales rep, by product, by customer gives better insights into supply and demand which circles back to better demand forecasting and less over/under stock.
The secondary effect of digital transformation for order management is the reduction of manual order processing which results in reduced requirements for labour costs.
Using our ROI calculator, you will be able to see the direct relation for reduced labour costs and increased margin.
Providing a modernized digital distribution model like OrderEase’s order management supply chain solution could be just the answer to eliminating inefficiencies. and increase inventory turnover.