9 Tips to Help Custom Builders Increase Their Supply Materials Purchasing Power

Custom builders are perceived to be at a disadvantage when it comes to getting the best pricing from their building materials suppliers. After all, giant public builders can cut pricing deals based on the sheer volume of orders they place with vendors. And though custom builders may have certain products they use repeatedly, they often purchase one-off supplies and materials to fit the specialized tastes of their high-end buyers.

But custom builders typically don't have the margins to pay a premium for supplies and materials — especially in today's market. So what can they do to get competitive pricing? The fact is, regardless of revenue or volume, custom builders can find ways to work with suppliers to get the best value from their purchasing dollar. Following are nine practical tips for purchasing managers on how to negotiate a good, fair price while garnering value incentives that stretch the builder dollar.

Don't nickel and dime vendors for the lowest price

It makes sense that you want to get the best price. But often the value of what you pay for is more than what's listed on a bill of sale; going for the vendor with the dirt cheap quote may cost you in the long run. Will deliveries arrive on time? Will they be delivered where you specify, or will your trades have to hunt them down somewhere on your site? How will the vendor respond to change orders? What warranties are provided? As the price goes down, the quality often dips as well.

"You're within a very, very tight range," says Greg Brooks, president and CEO of New Albany, Ind.-based Building Supply Channel, a building supply distributor.

"This is not to say that some people won't sell stuff to you very cheap. But something has to give when they do. It's either the service or the quality of the product."

The custom builder has to look at each particular vendor as one that has something valuable to offer that is worth paying a reasonable price.

And aiming for the lowest price isn't without its consequences; it can harm the relationship, too.

"It's been the game for many years for builders — even custom builders — to go out initially looking for and asking for the lowest price," says Al Bavry, president of Venice, Fla.-based Kimal Lumber Co. "This is a turnoff for the supplier because we have unique products and services. ... If we get the feeling that we're going to have to deal at the lowest possible margins, why should we go out of the way to help you?"

Nurture a partnering relationship with your suppliers

Custom builders need to seek suppliers who they think would be good partners — where the two sides look out for and help each other to succeed.

The need is heightened by the specialized nature of the product custom builders build. Even on the product selection side, a partner they can trust is invaluable. Say a custom builder's client wants a certain type of antique hardware. "We go the extra mile," says Bavry. "If it's feasible to handle the special millwork, the hardware, we do it. We have a good process. We research it. We identify it. We bring the information to you."

Bowman says he loves it when clients come to him about a new product they want.

"They come to us and say, 'I was reading Custom Builder magazine and noticed that there was an advertisement for Advantech flooring. I'd like to try it. Is there any way that you can help me with the vendor?'" says Donnie Bowman, president of Columbus, Ohio-based Khempco Building Supply. "We go to work for them at this point," contacting the vendor on the custom builder's behalf to work a pricing deal.

Build and maintain relationships with suppliers before there is a need. And frequently communicating with suppliers is crucial.

"One of the worst mistakes you can make is you work a couple of months and build a relationship because you want a price cut," says Gary Young, purchasing manager at Simonini Builders in Charlotte, N.C. "Then all of a sudden you get a price cut and you forget about them. You can't do that. It is the supplier salesman's responsibility to keep in touch with you and to come by and go over new items and the like. But it's also my responsibility if I haven't heard from him in a while to give him a call and say, 'If you're going to be in the area, let's do lunch.'"

Be an attractive customer to your building supplier

Glenn Singer, CEO of Builder Partnerships

A partnership is a two-way street. As a custom builder, you can bring value to the relationship just as the supplier can.

"Make yourself someone that people want to work for, that's easy to do business with," says Glenn Singer, CEO of Builder Partnerships, a builder/manufacturer marketing company in Littleton, Colo., with a goal to promote deeper, more beneficial relationships between builders and manufacturers. He also has a blog on ProBuilder.com.

"Having a job ready [on time], having it clean and having it set for that trade to get in and out [is important]. Custom builders by their very nature make changes, but [they should get] the customer to commit to the changes up front so the process works better. A trade may think he's going to put on the A cabinet line, and all of a sudden it's the B cabinet line. Nobody communicated [the change]."

Be fair. Barry Rutenberg, president of Barry Rutenberg Homes, a builder in Gainesville, Fla., says he had a subcontractor who had worked for him 10 years. Despite market conditions, he recently upped his rate.

"I looked at what it was," Rutenberg says. "He should have been up two or three years ago. His gasoline, his cost of living, his everything well exceeded his increases to date. He's the only person I've tolerated an increase from. He's worked for me a long time, and it was the right thing to do."

Something that will make suppliers particularly happy to work with you are on-time, regularly scheduled payments. Though it may not be feasible for some, custom builders can strive for a weekly or every two-week schedule.

"Clearly the most important thing builders can do to become preferred customers is to pay on time," says Brooks. "If something does happen that makes that impossible, communicate very quickly. I would say cultivate a relationship with that credit manager."

"If we get paid in a responsible way, it makes it easier and more attractive for us to do even more favorable pricing," says Bryan Rice, vice president of sales support for the north region of South Plainfield, N.J.-based Pro-Build Holdings, the largest supplier of building materials for professional builders in the country. "If we carry the cost of funds across, that does have to factor into prices."

Don't get stuck in a rut; get competitive bids

You don't select a supplier based solely on who is the lowest bidder, and you want to partner with suppliers you trust. But you keep your suppliers honest by making sure you comparison shop now and then. You may find a lower price, and if all things are equal, you may get your tried-and-true supply partner to match it.

"My carpet person, we've been using him for a number of years," says Young. "He's good. We keep in good touch as far as knowing where the market is going. But he knows that I check about every six to seven months. I'll quote out just to make sure I'm where I should be in the market."

If another bid comes in lower, Young will sit down with his current supplier to discuss it.

"I'll sit down with him and say, 'Hey, this is what's out there. We can discuss ways I can help you and you can help me, and we can get your price back down. Or if not, we may to have to look at doing something else.' I never give an ultimatum, but I do try to involve them in the process."

So reason with and listen to your supplier/partner. And don't make demands.

"It should not be based on who has the most testosterone," says Rutenberg. "Who is arguing harder is short term; working with a vendor so that it is mutually beneficial is long term. But letting them win too much hurts you. You have to have your numbers balance. At the end of the day, the builder needs to be profitable in order to continue."

Be an educated "consumer"

You are in a better position to negotiate a good price if you do your homework. Know what the going rate is for a particular material; that can be readily known if it's a commodity.

"Builders should be looking at future prices, which are in the Wall Street Journal," says Rutenberg. "They've got future prices for copper, lumber, and there are Web sites to get [other] future prices. When you know that information and you're bidding something, you can at least know what the future market is thinking the price is going to be. The more information you have, even if you're small, the better you are to make your pricing decision."

"You have to do that," says Young. "If a supplier calls you and says [a vendor] is going to go up because petroleum is going up, and if you've been checking the futures market and it's not doing anything, something's not right."

It's also important to realize that the price of the commodity isn't always the key determining factor of price for a particular supplier.

"Remember how copper shot up?" says Rutenberg. "We had plumbers and electricians come in and say, 'The price of copper has gone up double. I need to go up this much.' If you knew what the copper prices really were ... then you can argue that. Moreover, if you knew that copper was only 20 percent of the cost of the job from the electrician, then you knew not to let that become excessive." 

Barry Rutenberg, president, Barry Rutenberg Homes

Build relationships with manufacturers

Though you may purchase materials from a distributor, there's nothing to say that you can't reach out to the manufacturer directly.

"There's a lot of opportunity lost when the manufacturer doesn't talk directly with the builder," Singer adds. "Maybe the distributor is hosing the builder. That happens. You're a builder and you tell me that it costs $200 for my product, and I'm thinking, 'Well that's unusual, because for everyone else it's $100 installed.'"

Also, it's meaningful for a custom builder to have a relationship with the manufacturers of the more high-end, specialized materials and products they use more regularly.

"Even though we buy SubZero-Wolf, Viking, Miele, or whatever it is from different people," says Young, "I still have relationships with SubZero-Wolf and with Viking so that I can hopefully get concessions with special pricing, warranty issues, things like that.

"I have set up relationships with these people and gotten good pricing so that I can pass that straight on to the client," Young adds. He laments the inefficiency of calling a supplier to get a quote on one refrigerator, especially a brand purchased often.

"You go straight to the [manufacturer] no matter who you're buying from and say, 'I'm going to put your products out there in front of our clients. Can I get special dealer pricing or special promotions if I do that?' Usually the answer is yes."

Negotiate special pricing

Almost any price is negotiable if you can back up your request with a good rationale. For instance, smart custom builders can team up to create an informal buyer group.

"I've gotten together with three other builders [and] an architect ... to do a 150-acre development," says Rutenberg. "We have gone to a number of our suppliers and others, and said, 'We have this project; can we get a project quote?' We have gotten a better rate. They can give us the price decrease that is packaged so that it is more comfortable for them. We are still buying just like we did the day before; we are still paying our bills individually. We don't have any additional overhead. We're just trying to pool our purchasing power."

A custom builder might also approach a supplier — if not the manufacturer directly — about getting a model home discount or rebate.

"'We contact the vendor and say we've got a $2 million house going in over here," says Bowman. "We did that with Weyerhaeuser and their tall walls program. There was a builder building their own house, and we were able to get that supplied basically at no charge to the builder under the model home program."

Cultivate single-source suppliers

Look for single sourcing: a supplier who can provide the various products needed at the different stages of home production, plus installation.

Many builders are generally reluctant to have just one supplier. They don't want all their eggs in one basket.

"It's important to keep suppliers honest," says Brooks. "Keep somebody in the wings, of course, so that you don't get stuck if something goes wrong."

But the more you can focus on a particular supplier, the better.

"Probably the best way to put it," Brooks says, "is the more product lines they sell you, the more they are a captive audience."

Go beyond the company name; your local lumber supplier may sell a lot more than lumber.

"There is this misconception that, well, they're a lumberyard," says Bavry. "They sell plywood and studs. They probably do doors and windows. They don't think beyond that. Yet many of us, especially the successful independent ones, have had to segue into so many different product systems that we are extremely broad-based."

Bowman says he can provide all the products for framing; interior and exterior trim; roofing; and windows and doors. He can also operate on a schedule determined by the builder and create a very seamless process. They pass the house on to the builder 60 to 65 percent complete.

"He just has to schedule those few final trades," Bowman says. "There is pricing leverage in using the whole package from us. That's part of the savings. The real value that we offer is we take a lot of the liability and headache off of the builder. Would you rather have your builder out there managing his subcontractors or out there selling another house?"

Standardize products as much as possible

Standardizing products can be tricky for custom builders, where every home is unique. Still, it is quite possible to have a slate of products and materials you use fairly regularly, if not on each and every home you build, that can produce a regular enough purchasing cycle to warrant special pricing.

"Let's say [a custom builder] is building 10 big houses a year," says Singer. "If he's using 10 different roofing products and manufacturers, is he getting the best price at the end of the day, or can he can sit down with CertainTeed roofing and say, 'Look, I want to use your top-of-the-line.' Maybe there's some leverage there."

Singer says roofing is a good example because the standard roofing that goes on a typical house is not the most profitable for manufacturers. They want to sell a higher line for shingles and systems. The custom builder is attractive because he or she is a trendsetter to middle-of-the-line builders who often try to emulate them. It's worth it to them to create a price incentive for custom builders to buy a high-end product.

"It could be shingles, trusses, I-joists, flooring systems, sheathing — all of that should be coming from the same people," says Young. "We spec those on our custom homes as well as in our neighborhoods. That gives you more buying power. It's much easier to get quotes."