Values out of whack?
We’re going to start this in reverse, conclusion first. Value engineering hurts the dealer, the builder, the manufacturer and the industry. A little dramatic? I hope you’ll excuse me. After all, it’s Monday morning, and we have customers queued up asking how we can cut the price of their project. So we give them coffee, try to calm them down and explain that we won’t let them cut anything, for their sake, and really they should be adding. Adding features, new products, styles, things that differentiate them from their competition; VALUE-ADDED, that’s what it’s all about, right … right? If this sounds like a day in your building materials organization (formerly known as a lumberyard), raise your hand. Anybody? Somebody?
The concept of value engineering is that you are helping your customer be efficient, economical and better at their business — all seemingly good things, particularly in trying times. At the retail level, the idea is that you are going to lend valuable expertise to a builder to help him build an equal product for less money. In order for this to truly happen we have to assume that the project and product being sold has one of two possible issues.
The first is that the product will yield excessive performance — a subfloor that you could park a dump truck on (if you’ll excuse the hyperbole). The other is that there is an innovative alternate product that is better, for less money — quite literally, a better mousetrap. When this happens, it deserves great praise. Obviously, that’s not part of this discussion. If one of these factors is in play, then you have done the builder a service. But what if that’s not the case?
Everyone’s favorite easy economics lesson is supply and demand. It’s universal, and it’s in play pretty much all the time — even if you don’t realize it. The price of oil, steel, lumber and groceries are obvious. Higher demand, higher price. Weak demand, weak price.
Let’s focus on the demand. Demand often dictates what supply ultimately does; and when demand dictates a certain behavior or choice, supply fills the need. The manufacturers deserve some credit for their read on the market. Society values the ownership of things in appearance and quantity, right or wrong. I’m probably as guilty as the next guy or gal, so there’s no judgment here. Since we no longer want toasters built to stand the test of time, is it any surprise that building materials manufacturers have embraced similar low expectations from their end users? Quality products have been replaced by available products. The majority demand is for building materials that are as cheap as can be tolerated by code, or shame. For the time being building materials manufacturers have painted themselves into a corner. The marketplace is flooded with products vying for the crown as the cheapest product available for a given application.
Cost cutting, quality reduction and subsequent post-product-failure reengineering all masquerade as innovation, improvement and, my favorite, “margin-boosters.” In the end, it is a bit self-defeating, and there will be some hard decisions to be made. Drown, or come up for air?
Dealers or retailers (however you choose to phrase it) stand the most to lose. The best intention on this particular road to hell is the desire to help the customer find a more cost-effective way to do business — a noble goal, as we previously discussed. Unfortunately, the industry has all but lost the ability to tell a customer a product isn’t up to their standard, or make a recommendation that would improve the quality of their building.
Inevitably, we all find ourselves in a situation where we grin, and tell the customers, “We do an excellent job of value engineering,” when we often should say, “Yes, I’ll price this with the worst products that I can find.” We really need to turn this around.
So next time you’re ready to market exterior trim products that only differ by a heavy coat of primer from their inside counterparts; or housewrap that you can see through; windows that won’t open; installation guidelines designed to be impossible — consider what kind of “value” is delivered by downgraded products.
Just once, let’s demand some real innovation. Let’s demand that a product works better, and can save some long-term cost, and provides long-term performance instead of just saving on the price. That is real value.
John W. Steinman is VP purchasing at Forge Lumber.