Case Study: BuildDirect and a Lean Supply ChainPosted: February 8, 2012
I came upon a firm named BuildDirect (http://www.builddirect.com/) a Vancouver-based company that is re-thinking the building products sector through innovation, entrepreneurial action, and analysis. In the words of the two co-founders:
When you move to help others first before you help yourself, you create something powerful.
This is the idea that inspired two friends Jeff Booth and Robert Banks to create BuildDirect in 1999, an online platform for anyone to buy high-quality building materials in volume quantities for less money than retail. They’ve grown the company from the kitchen table to an internationally recognized channel for flooring, tile, and other products delivered more efficiently, and with fewer costs to the end customer.
Jeff and Rob know that making it easy for consumers to get the best results in a renovation or construction project at the best possible pricing using cutting edge technology is a sure-fire base for an innovative 21st century company.
Jeff and Rob saw that the traditional process of bringing materials to market was complex – too complex for the average buyer. And the costs associated with it creates needless expense for families renovating properties and building homes.
They built the company to solve these problems. They simplified the supply chain through Internet technology, cutting the costs as they went along. They oversaw a proprietary logistics platform to deliver building materials internationally while providing visibility at every step of the way.
As a result, BuildDirect customers have paid less for high-quality flooring, tile, decking, kitchen & bath surfaces, and more without wondering when the products were going to arrive or paying the additional fees associated with the traditional supply chain.
What caught my eye was the focus the founders had on reducing the waste in a supply chain and thereby create residual value for customers and themselves. In a National Post interview Jeff Booth had this to say:
Q: Tell us about your business model, and how you got started.
A: I co-founded a building company, building single-family homes in Vancouver. BuildDirect’s co-founder was the financial analyst of that company and a good friend of mine.
We got started because of a huge problem. I had a building company and was trying to deliver a finished house to a friend. The flooring didn’t come and I had to put them up in a hotel. They were really mad, and so was I. I tried to chase down where the flooring came from to try to hold someone responsible and get the house finished, and I couldn’t find out where it came from. Nobody would take responsibility. The number of people it touched on the way back to the manufacturer was overwhelming.
And I thought, “If it’s this difficult for me and I know this industry, how does a buyer have a chance?”
My idea was to make it simpler and less confusing for buyers.
Q: How do you innovate?
A: We started in 1999. We were up against the dot-com collapse, and the meltdown of the building industry in the United States. We had to innovate or die.
One of the first problems we had to solve was that building products are inherently overweight. Most of the ecommerce providers ship products less than 70 kilograms, or digital goods, because those can be delivered by FedEx. But all of our building products weigh between 450 and 9,000 kg. We had to build a technology in the supply chain to calculate the cost of delivered goods, and get that to the buyers.
Q: So, your process involved fixing what was broken. How did you do it?
A: It was through trial and error, like all businesses. We first tried to outsource. We tried to outsource the logistics technology and failed three times before pulling in a crack team to do it in-house.
One of the reasons it failed is because there are so many incumbents in the space that want it to stay the way it is. So we had to look at what our vision is for the future, and build that. It looked very different than anyone else’s. It created a huge value and a barrier to entry for other companies attempting it.
Q: What does the process look like?
A: Our model is essentially to buy a Costco volume of products. Our order volume is around container loads – 2,250 square metres of flooring [for example]. Our buyers pay in advance, and wait three months while we produce the product directly from the manufacturer, and deliver it to them.
Over time, we created so much data from the manufacturers that the data drove it more effectively. Now, they plug into our data model and our logistics engine and get the scale benefits of the largest manufacturers in the world, because we do so many shipments that we can predict their supply chain better than anyone else.
Some of the manufacturers involved in this platform don’t have another sales rep, or another marketing arm. They don’t go to any trade shows. Their entire production is handled via our website. That’s the win. If they can reduce all those costs, then buyers save that money.
Q: So the crux of your business is really analytics?
A: Analytics, and lean supply chain processes. That’s the crux of the business. The old joke in the building industry is whatever your contractor tells you, double it. That’s because there are so many manufacturers trying to get through a complex distribution channel.
The whole model is based around that problem, and solving it so manufacturers don’t have to hire hundreds of salespeople. If we can do that really well, we can take lots of cost out of equivalent products, and the buyers can also save money. So it was a win-win for us, the manufacturers and the buyers.
Q: What kinds of comments and feedback did you get in the early days?
A: We were building against a backdrop of the dot-com collapse, when billions of dollars went into finance companies, and it was all a stock play. We looked so junior to that industry. We were told it was locked down. There was no chance. “Go home, guys.” But we were so sure our vision was right that we kept going. We got knocked down, and we got back up.
We founded BuildDirect with $20,000 each. We tested hypotheses against many manufacturers, to see if we could make it work. We started to raise money from friends and family, and then from larger institutional players as we hit milestones of success.
But it was hard. Back then, most of our business was in the U.S., and in 2006, the building industry started to collapse. That accelerated in the past five years, to the point where residential investment is off almost 70%.
During all that, the way to sustain the will to keep going is to believe you’re on the right track. We also built an exceptionally strong team that believed in that message
Here is the interview on YouTube: