The report, A Study of the Building Materials Sector, was undertaken by Davis Langdon & Everest to help the government understand the changes occurring in the construction and materials products sector. One thing jumped to the fore: "Of all the developments that can be foreseen, few have the capacity for such profound change as those enabled by the internet and e-business."
The race to get online
With the industry slowly starting to embrace IT, suppliers are having to respond. "It's a worry for everybody," says Karen Pederson, head of marketing at expanded polystyrene manufacturer Vencil Resil. "We share a website with other companies in the group. We are working on a dedicated website because we feel it is important to have a full e-commerce presence." The Construction Products Association was closely involved in the DETR study. "I don't think everybody should jump blindly into e-commerce," says chief executive Michael Ankers, "but it is imperative to do something quickly." The message of the report is that the internet's range of uses clearly represents an opportunity as well as a threat for those in the building materials sector.
This point is not lost on suppliers. "The internet brought us our biggest order yet," says John Spencer, sales manager for Power Plastics. And Peter Sanders, marketing director of lighting manufacturer IBL, also sees potential: "Because people can access the web 24 hours a day, 365 days a year – and from all over the world – having products and installation information displayed clearly will definitely prove useful." Many use the internet simply as a promotional tool. "It's one more way to market our products," says Spencer. "Most people take a look at our website then phone us. We get about six calls a day this way." IBL's Sanders agrees: "The internet is a useful addition to our marketing mix, but it is not a replacement for traditional marketing." Some companies, however, are using the internet to offer their customers increased value. In their simplest form, interactive websites allow potential clients to select and request product information online. Some sites, however, are much more sophisticated.
Barrett Steel Buildings, for example, has launched an online service that allows contractors and developers to design a portal-framed building on screen and obtain costing information in minutes. They can even call on an architect and cladding contractor to design and cost the entire building envelope. But the program goes further: it also produces a full specification that users can download and paste directly into their project documentation or email to other members of the design team.
Convenience and savings
Although access to a wider market provides suppliers with opportunities, the report highlights pricing transparency as a possible threat to suppliers' business. Making it easier for potential buyers to shop and compare prices from their terminals, allows a clear view of what competitors are charging. Spencer disagrees that this is a threat: "If our competitors are any good, they'll already know our prices anyway." Other principal threats to suppliers that the report identifies are collective procurement – where buyers group together to strengthen their buying power – and open-auction pricing. Open-auction pricing is a mirror of the method used by the government whereby buyers of some goods run a "reverse auction", with materials prices displayed online, inviting bidders to quote a lower price.
Who stands to lose?
The pressure on pricing is particularly likely to lead to extra competition in products where there is little to choose between suppliers. The report states: "This will be felt in products that can be clearly specified and where there is little opportunity for differentiation in design, manufacture and service." However, for some low-value supplies such as gravel, proximity to the site will remain more significant than price per tonne.
The role of the middleman – such as merchants and distributors – is also under threat, warns the report. "This is a big issue for the distribution industry," says the CPA's Ankers. "Will contractors go directly to suppliers because electronically they can scan suppliers' prices or will they rely on builders merchants to scan the pages for them?" The size of the order will probably decide which option a contractor follows. "Big companies will probably go directly to the suppliers, but the smaller builders will still go to the merchants to pick up a variety of materials," says Ankers. "In any case," he adds, "suppliers will not want to supply small quantities directly." The report suggest that one drawback to electronic trading is that suppliers will become alienated from their customers. This is not the experience of Jonathan Metcalfe, marketing manager at Johnstone's Paints: "The web does not alienate customers. It has completely the opposite effect because it gives us the opportunity to communicate with people that we wouldn't have been able speak to before – at any time of day or night." Power Plastic's Spencer agrees: "We've got all of our mugshots on the website. That way our customers can put a face to a name." The cost of all this IT is will also push change. The scale of investment is, according to the report, "expected to lead to some changes in the structure of the building material industry … including increased consolidation".
The report concludes: "What every business needs, as a matter of urgency, is to have a strategy for e-commerce: not for a dot-com venture, but for how it will do business electronically in the future and the impact this will have on the structure of the existing business." Given the changes that the future appears to herald for materials suppliers, the strategy will need to be a flexible one.
