Suppliers to the home building industry are feeling the effects of slower demand. Although the length and depth of the downturn are uncertain, we at The ProAction Group are encouraging our clients in this sector to take action to protect and grow earnings.
For many companies, earnings improvement potential exists that went unappreciated in the recent years of rapid housing growth. Today is the time to uncover those less-obvious improvement opportunities and execute a strategy to capture their value. Our experience is that a more expansive definition of served markets and product scope often leads to growth.
There are several ways to improve earnings, within a company's current operating platform:
1. Develop a detailed understanding of profitability by customer and by product and act on this information.
What has been driving your profitability? Which are your most profitable products, channels, and customers - and why?
In the building products industry, different customers require different costs to serve. Factors which affect the cost to serve include:
- Frequency of purchase
- Quantities and mix
- Sales effort required
- Level of customer service and support
Customers often don't pay the same net prices, and may actually buy on different terms. Allocating costs among customers and reviewing pricing and terms is not easy work. Few organizations have tackled this task in-depth, or kept their profitability analysis current. As a result, many companies are operating without clear and actionable knowledge of which customers are profitable and which are not. This knowledge enables companies to take action on pricing, terms, and service levels that are customer-specific and situationally appropriate. Ultimately, companies armed with this information can raise profit levels on lower-performing accounts and reposition their customer portfolios.
A similar situation often exists for products: many organizations do not understand profitability at the SKU level. Symptoms of this problem include:
- Missed forecasts
- Volume shifts
- Frequent product changes
- Product proliferation
These issues create complexity for Sales and Marketing as well as Manufacturing. The end result tends to be higher inventory carrying costs for customers and other channel partners. When these product variants create enough incremental margins, they can be profit-enhancing. But many do not, becoming drains on profitability.
How can The ProAction Group help fix the laggards?
We assist companies in identifying and acting on opportunities to rationalize their product line. We help companies:
- Adjust prices
- Determine minimum purchase quantities
- Evaluate product variations
- Capitalize on common parts
- Make sourcing decisions
- Assess stock vs. make-to-order options
2. Outperform the competition by improving business processes.
What aspects of how you do business add time, cost, or hassles to your customers' and suppliers' operations?
If companies ask customers and suppliers this question directly, the feedback can be invaluable. Surprisingly, it can be easy to implement a number of their recommended changes. And doing so may help customers capture a larger share of demand. Responding to their suggestions will not only reduce costs and hassles for customers, but will also earn their loyalty.
How can The ProAction Group aid in outperforming the competition?
We assist companies in better serving their customer base. We assist in developing:
- Clear insights into how companies can become easier for customers to do business with
- Programs for selling on the basis of total customer value, vs. just on product/price
- Joint sell-through programs with customers that suit current market conditions
3. Find growth in services, expanded product scope, and adjacent market spaces.
Do your customers have unmet needs that neither you nor your competition is responding to?
Often, the new product development process is not working to its full potential. New product sales may significantly lag the budgeted plan or represent a small percentage of total sales. Customers and end users may not perceive the distinct advantages of new products. Customers may also be compelled to seek competitors or vendors outside the industry to bring new ideas.
How are you targeting the remodeling and retrofit markets, both professional and do-it-yourself?
Retail point-of-sale data can be an excellent tool to compare sell-through among stores. By identifying best practices at the most profitable retail outlets, a company can augment its sales at other stores. Reconfiguring professional products for layman use is another viable avenue for continuing growth. Partnering with major retailers to bring these products to the consumer marketplace can be advantageous.
Do light commercial construction markets offer opportunities to grow?
Assisted-living facilities, nursing homes, motels, churches, medical offices, and retail space often employ similar products to those used in residential construction. As the population continues to expand and age, many of these service facilities will be required. Being well-positioned within those markets and the channels that reach them can offer new growth as housing starts stall.
How does The ProAction Group help find growth?
The capabilities required to win in adjacent markets or with an expanded scope are often different. We assist companies by:
- Assessing the market and current product offerings
- Bringing greater effectiveness and speed to new product and service development
- Implementing marketing changes
- Evaluating and mitigating the risk of entering new markets
Even during a downtown, disciplined companies will act on their knowledge of what drives their profitability. They will reposition themselves to find growth and outperform their competitors. Partnering with The ProAction Group can be a proactive step toward increased earnings and sustainable growth.
