Building Products Supply Chain Update - The Rise of On-Line and Zero Step Models

It's been a a couple of years since I've written about the building products supply chain.  Since my last blog a couple of emerging models have gained traction that are worth discussing.  One, I am sure you are familiar with but the other may not be as well known or well discussed.

On-line sales and "zero-step" supply are the two emerging supply chain models I will discuss in this blog.  Neither of these models are new but both are changing the dynamics of the building products supply chain/marketplace.

On-Line Sales
The emergence of on-line sales doesn't warrant the definition of a new supply chain channel.  It's just a new front end for one of the existing supply chain channels (including zero step - see discussion below).  And it's a game changer.   On-line sales are permeating our everyday lives.  Mall stores, age old retailers and specialty retailers are closing and being replaced by on-line sellers.  On-line purchasing is being embraced, especially by younger shoppers and can sometimes be easier than making a phone call.  And while malls and other shopping centers still appear busy, it seems they are being used as "touch and feel" aides for the on-line sales machine.  Try it on/out at the mall and order it on-line.  This is a trend that suppliers with product showrooms need to watch carefully.

The good news for those not embracing the on-line selling methodology just yet is that the immediacy of end user/contractor product demands along with after sales support requirements combined with a lack of planning and/or changes to job specs keeps the local (off-line) supplier top of mind - for now.  And chances are there will be a need for local suppliers for a long time.  But without an on-line presence, building products supplier sales will regress especially for special orders and other long-lead time products.

Zero-Step Supply Chain Model
The zero-step channel has gained significant ground in building products supply. Zero-step has always existed but has received very little press.  This selling methodology has been a secret of building products manufacturers for many years.  Manufacturers are stepping up their use of zero-step distribution but they are reluctant to talk about it since most of their product still goes through (and will continue to go through) the 1 or 2-step model.  Openly discussing the zero-step model is a bone of contention with the manufacturer's main customers.

To define the zero-step model you will recall from my previous posts that the number of stops between manufacturer and end user (i.e. contractor) defines the channel.  So when material goes from manufacturer to distributor (1) to dealer (2) to contractor - the product has gone through a 2-step distribution model.  The 1-step model cuts out the distributor and the zero-step model cuts out both the distributor and the dealer such that material flows directly from the manufacturer to the contractor with zero intermediate steps.

The reason why the zero-step model is growing is due to the continuously improving economy.  With an improving economy, contractors are consolidating and growing which sets them up for volume purchases from their suppliers and eventually the manufacturer.  Very few manufacturers will NOT sell directly to a contractor if basic conditions for the purchase are met.  Some of those conditions are:  truckload or other required minimum purchases, an annual quota, delivery to a warehouse, agreement to payment terms, etc.  The bottom line is that the manufacturer retains most of the power in their relationships with building product supply chain players so they have the ultimate call on how many distribution steps are necessary for their products.

The insulation industry has been stepping up their use of the zero-step model over the past few years as have other building products manufacturers.  Indeed the newest entrant to insulation industry, the manufacturers of (drum) spray polyurethane foam, are using zero-step as the default selling methodology and prime channel choice.  And to the amazement of some, the custom door industry, lead by Masonite, is testing the zero step model with their new acquisition Advisar.

Summary
All players in the building products marketplace must be aware of and address these supply chain changes.  While almost every building products supply chain company can do something to become relevant with on-line sales there's not much an intermediary can do about zero-step distribution - or can they?