Wow, more spine-tingling news. Last month it emerged that several Top 10 homebuilders have set up a task force to look at ways of using a joint website to buy building materials at a greater discount.
And sure enough the progressive ones appear yet again - Berkeley, Westbury, Redrow, Wimpey and Bellway. (Have you noticed how we don’t hear much from Barratt these days - are they clinging on to the 1980s glory or are they quietly cooking up homebuilding’s next big thing?)
A few days later we read that McAlpine has joined forces with four construction materials firms to do a similar thing.
What a year 2000 is proving to be.
I hope you don’t mind too much but this month I’m back on my cars versus homebuilder soap box again because there are some very interesting parallels to be drawn between these announcements and recent events in Detroit.
Early August 1999 the Ford Motor Co in Detroit announced a new deal with a software company to set up an e-commerce-based supply chain system called AutoXchange. This new web based forum for automotive suppliers to buy and sell parts and materials was to eventually handle all of its purchasing - currently some $80bn per year - and was to open in March 2000.
Ford described its goals as being to streamline purchasing, reduce costs and lessen the time that it takes to build cars. As Brian Kelly, president of Ford’s global e-commerce unit said: “If we don’t see a significant reduction in manufacturing cycle times we won’t have done our job. You won’t see it in the first six months because the processes are massive - but it won’t take five years either.”
Ford’s ultimate goal, according to industry experts, is to be able to quickly build the cars that customers want and specifically order, rather than pushing on dealers and buyers a stock of cars and trucks that their plants have the capacity to make. To do this Ford knows it will have to reduce the complexity of its vehicles and design them for quick custom build.
The Detroit News heralded the initiative as the spark that will transform the industry from being regarded as an industrial dinosaur to being models of cutting edge high-tech based consumer businesses. “This industry is often looked at as a smokestack industry,” said Ford president Jacques Nasser, “But I’ve spent more time with the online guys than I have with the nuts and bolts guys.”
Just a few hours later General Motors rushed out an announcement of its competing e-commerce initiative to be called TradeXchange. This would eventually handle $85bn of purchases annually and was also due to open in spring 2000. Every purchase order was costing GM about $100 but with TradeXchange it could be reduced to $10. “By 2001, we expect all of our suppliers to be actively engaged in this,” said Harold Kutner, GM’s vice-president and group executive of worldwide purchasing. “Those not actively engaged by 2001 may well be replaced.”
GM officials admit bringing forward their plans by several days in response to Ford’s move. The stakes for both are huge. Ford is said to be expecting $1bn a year by 2001 from charges such as transaction fees and commissions on auctions of excess inventories. GM has similar expectations.
Computer World called the two initiatives “The duelling exchanges”. Detroit News talked of Ford and GM facing off in a race to become the first auto maker to harness the power of the internet. J D Power and Associates, best known for its customer satisfaction research in the US automotive industry, called it “a press-release race” with two companies “making announcements of grandiose plans well before they have the infrastructure in place”.
In February 2000, just six months after the two announcements the duelling stopped and the race ended just as abruptly as it had started.
In an unprecedented move that shook the global auto industry to its very core, Ford, GM and DaimlerChrysler announced that they were to join forces to combine their efforts to form a business-to-business integrated supplier exchange through a single global portal.
As the Canadian news wire reported - this venture will create the world’s largest virtual market place. The new enterprise will offer open participation to all auto manufacturers around the world and their respective market of suppliers, partners and dealers.
This time Jacques Nasser of Ford talked about how, “the internet is transforming every piece of our company and our industry. It’s exciting, it’s dramatic and it’s only going to accelerate”.
GM’s Harold Kutner said, “Nobody will be faster. Nobody will be better and nobody will offer more to everyone involved.”
Another GM spokesman stated that, “by joining together we can further increase the pace of implementation, thereby accelerating the benefits to everyone involved.”
Ford, GM and DaimlerChrysler welcome the participation of other automotive manufacturers and suppliers. “Suppliers will be able to channel their efforts through a single exchange, this will help to reduce overall inventories, develop industry standards and provide increased productivity to all participants”.
Not only that but the three partners are hoping their platform can be rolled out to other industries. Perhaps displacing new business-to-business intermediaries that are already trying to bring the internet to industry.
It has been estimated that the total saving for the US automotive industry could be $18bn per annum - this equates according to Goldman Sachs to around $1,065 per vehicle.
I have a feeling, once again, that where the auto industry leads the homebuilders will follow. However in the case of internet trading perhaps the time lag will be significantly shorter this time.
What is for sure is this. If you are a big dinosaur homebuilder or supplier with senior people who do not want to engage with new technology and you think that the internet is just a bit of a diversion from the real business of building homes then think again. You could be out in the cold quicker than you think.
I personally hope that the savings that the internet generation builders will make will not all be channelled straight to the bottom line. What may be good news for the shareholder may not be good news for the consumer.
Try telling Mrs Jones that you are high-tech, dynamic, go-ahead builder when she has just taken a day off work waiting for a plumber to fix her heating system and he didn’t bother to turn up. At least my car gets fixed when they say it will.
www.cutoutthemiddleman.homebuilders
A number of companies have been in talks with homebuilders about the launch of a joint site to buy building materials at a greater discount. “We rely too much on middlemen and the idea is to get rid of some of them,” one homebuilder told Building recently. Top homebuilders, thought to include Berkeley Group, Westbury, Redrow, Wimpey and Bellway, are believed to be in talks with companies including Schroders, Deutsche Bank and CGU about setting up a service. As well as building materials at a discount the proposed homebuilders’ joint website is expected to include a one-stop internet shop for homebuyers offering a range of services including possibly mortgage arrangement and help with selling houses.Source
Building Homes
Postscript
Malcolm Pitcher is a director of PCL and In-house Research. He specialises in marketing strategy, brand strategy, culture change, change management, marketing research and customer satisfaction monitoring.
