ProBuilder.com Professional Builder 21
The problem is that having paper pushers on the payroll
is a tremendous cost to your business. Direct construction
costs are higher than the competition, and you miss out on
more and more land deals because they simply won’t pencil
out when you factor in those higher costs. You can’t sell more
homes because you don’t have the margins to negotiate deals.
Your ability to grow is limited.
You may rationalize keeping paper pushers on your payroll
because they draw a low salary, but I can tell you that’s the
costliest decision you will make.
Hiring the right people for your purchasing department is
critical. Sometimes it takes money to make money—including
investment in a good recruiter. Expensive, yes, but so is a bad
hire. Good recruiters are plugged in to the profession and the
industry; they know the movers and shakers and where the
dead wood is, as well. Push your budget and hire the best you
can afford. Think of it as an investment—because it is. A good
purchasing professional will generate savings in excess of 10
times their cost. Where else can you get that kind of return?
TRAINING
Train, train, and continue to train your purchasing team.
Companies typically do a good job of training their sales
teams and even their construction teams, but most don’t pro-
vide training for their purchasing teams. That’s crazy. Think
about it: Your purchasing team basically has your checkbook.
Don’t you want to do all you can to make sure they’re making
educated decisions? If so, educate them.
Training topics should include how to negotiate, do take-offs,
use an ERP (enterprise resource planning) system, do trade per-
formance appraisals, manage change orders, implement cost-
avoidance strategies, resolve confl ict, tap sources to identify
new trades, onboard new trades, as well as knowing about sup-
ply chain techniques, Lean principles, continuous improvement
methodologies, and cost indexing ... the list goes on and on.
SUPPORT
It is critical to remove roadblocks that prevent your purchas-
ing team from succeeding ... and there will be many in your
way to achieving a competitive cost structure, especially if
you haven’t had one in a long time.
To remove roadblocks, it helps if you and other senior man-
agers and leaders show and voice your support for the pur-
chasing function. Give them a seat at the boardroom table
and treat the purchasing department in a way that recog-
nizes its strategic function.
One common roadblock can be suppliers and trades having
well-established relationships with key leaders in your orga-
nization. Such familiarity and comfort isn’t a negative thing—
unless your purchasing department has reason to believe the
trade isn’t providing competitive pricing or is otherwise tak-
ing your business for granted. Be open to the potential that
not every trade you do business with is the best one for your
company, regardless of how many years they’ve done busi-
ness with you.
Other roadblocks are budgetary. As the market tightens, so
do budgets, and you may be tempted to shed “costs” (people)
within the purchasing department. While SG&A (selling, gen-
eral, and administrative expense) is always a fi nancial focus,
especially in a downturn, laying off good purchasing people is
like letting go of the goose that lays golden eggs. Don’t get me
wrong: A downturn is a good a time to let go of paper pushers,
but not skilled purchasing professionals.FOCUS
Keep skilled purchasing professionals focused on the end
goal. They understand the difference between price and cost,
what they pay for a product or service versus what they end
up paying over the life of that product or service—the total
cost of ownership (TCO). A skilled purchasing professional is
focused on reducing TCO, not price.
Take change orders, for example. Skilled purchasing profes-
sionals aren’t just focused on how they can process change
orders more quickly; that would be like trying to fi gure out
how to scrape burnt toast faster, rather than understanding
the root cause of why the toast is getting burned!
Rather, skilled purchasing people dig into each and every
change order to make sure you aren’t being overcharged for it.
Remember the picture of the yacht named Change Order and
the dinghy named Original Contract? Instead of asking your
purchasing department to process change orders faster, focus
on why you’re having (or allowing) so many change orders.CHALLENGE
Encourage new ideas and approaches. People are creatures of
habit and generally don’t like it when you “move their cheese,”
but a good purchasing professional will push people out of
their comfort zone, which is where improvement is made, by
challenging the status quo through their belief that there is
always a better way to do something. Support that mindset.
An informed, skilled purchasing team is a strategic advan-
tage. They manage your expenses through cost avoidance
when the market is good and cost reduction when it is not.
Trades rarely offer up cost decreases on their own, but are
often willing to do so when you approach them with data that
proves an adjustment is in order. To get those decreases, you
need competent, knowledgeable purchasing professionals. PBTony L. Callahan, CPSM, CSCP, has worked in the home building
industry for more than two decades.