Are you wondering what all the recent shifts in the building materials industry mean for the next era of construction? Whether it’s broader adoption of technology or more vertical integration in businesses, we explore what’s going to happen to the lumber dealer and ConTech companies like Katerra.
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In this episode, Zach talks with Greg Brooks, the moderator of the Executive Council on Construction Supply, about what opportunities are available to lumber dealers and how they can stay ahead of more industry changes in upcoming years.
Understanding Opportunities in Building Materials
Greg Brooks runs the Executive Council on Construction Supply, an organization he calls a “think tank,” comprised of dealers, manufacturers and distributors from the U.S. and Canada.
“We study what's going on in the marketplace, and we look to see where the opportunities are coming in. Then we share strategies to capitalize on those opportunities,” says Greg. Greg is a veteran in the construction industry, and he’s been writing about and researching building materials for almost 50 years now.
The building materials and construction industry isn’t known for rapid change and many dealers tend to play it safe when it comes to new products and services. “They want to wait until it's established and that's fine. You can make a living that way and it's a safe way to do that,” explains Greg.
But the industry is ripe for change and that’s what Greg and the Executive Council want to address. “The problem is that every product and service has a life cycle, and so if you are always the last one on the bandwagon, you always miss the most profitable part of the cycle,” he explains.
The Council meets annually, and industry research is provided so that everyone there gets a chance to understand and analyze the trends impacting the industry. “That's essentially what we do, is try and get everybody the market intelligence they need to make good strategic decisions,” explains Greg.
Trends To Look for in Construction
Prefabrication has grown dramatically in the construction industry, especially in the last few years. Studies from Dodge Data and Analytics indicate that “most design and construction professionals using these methods experience improved productivity and project quality, plus increases in schedule certainty.”
But Greg points out that building efficiency (and removing steps in the construction process) isn’t anything new. “Really, analysts have been saying that ever since Henry Ford introduced the first assembly line,” he says.
“Every time it comes back, it's something different. This time around, of course, we have building information modeling and we have CAD/CAM programs and we have all kinds of support for prefabrication that we didn't have before,” says Greg.
So what does that mean for lumber, if something like on-site stick-framing is on the way out?
“If I'm a dealer, does this mean that I buy myself a wall panel plant? Does it mean that I get into computerized pre-cutting, similar to BMC's Ready-Frame?” asks Greg. “These are major changes for dealers who have historically simply provided materials to the job site.”
What it means is that all of the same steps have to happen in construction, but the right question to ask is: Who is in the best position to provide that step in the process?
For innovative and forward-thinking lumber dealers, that means not just selling products, but adding efficiency to the project, whether that’s through off-site construction or panelization.
It’s a focus on both the products and the services you can offer.
What Construction Technology Can’t Do
There’s been a wave of startups focused on the growing demand for efficiency in the lumber industry and construction.
“The amount of private equity investment money that has gone into what's called ConTech, construction technology, has grown like 10 fold in the past five years,” says Greg. “You've got Katerra and Entekra and Blueprint Robotics, and all these people that are in there, trying to convince builders that you ought to have this whole thing built in a factory.”
Since being established in 2015, Katerra has raised hundreds of millions of dollars from investors. The tech-driven firm envisioned a more efficient and fully-integrated construction process, “taking responsibility for the entire project life cycle and integrating every product and service necessary to design and assemble buildings,” according to its website.
TechCrunch reports that the SoftBank Group recently put another $200 million towards a bailout: Katerra was teetering on bankruptcy, after COVID delays and cost overruns endangered its stability (along with “irregularities” in accounting).
“Katerra’s shareholders reportedly approved the new investment on [December 30, 2020], with the new lifeline from SoftBank coming on top of roughly $2 billion that the Japanese technology conglomerate had already committed to the venture,” according to TechCrunch.
That kind of business failure isn’t new in the construction industry.
“There was a big movement toward prefabrication back in the 1990s. There was a company called Wickes Lumber that used to be the number one in the industry,” explains Greg. “They had a program called ‘Frame A House In A Day,’ and they would prefabricate everything, and just come in with a crane, and just drop all those components together, and they were done in a day.”
But bringing all of the construction process in-house isn’t necessarily the answer to construction’s inefficiencies. “In theory, it works just fine,” says Greg.
But if any part of the assembly is off by a quarter-inch, you run into big problems. “That's why you stick-frame and why you keep the trades separate, is because each one can react to the situation, that if something was off a little bit, they can fix it,” explains Greg. The construction process requires a nimbleness that large companies might not always be capable of.
How To Stay Ahead
The biggest question for Greg was whether or not lumber dealers will grow obsolete in the foreseeable future. Will builders start buying directly from the manufacturer?
“We have been through this, actually, multiple times,” says Greg. In the 1990s, Greg was a founding editor of Builder Magazine, and they frequently surveyed their readers to gather research on the construction industry.
“Builder used to survey builders every two years and asked them, ‘Are you buying direct? What are you buying direct?’” explains Greg.
“What would happen was every one of those two years studies, they'd go the other direction. This time around, yeah, we're going to buy everything direct. Next time around, no, we're going back to distribution,” he explains.
There were seasons of change in the building industry — and it continues to remain a cycle — “because it all sounds great to buy directly from the manufacturer, but then, where's my warehouse going to be? How am I going to get that stuff to the job site?” asks Greg.
Lumber dealers still offer a considerable service to builders, because they’re transporting the materials, assembling prehung doors and windows and altering products to fit the builders’ needs. There’s still demand, according to Greg, for “somebody who specializes in all that staging and pre-assembly and all that sort of thing,” he explains.
“[T]hat's a whole different skill set than building homes. It's a whole different skill set than mass producing products,” says Greg.
And there’s a need for the local lumber dealer who understands their market and their customers. “This is probably the most important thing in the home building business is that the building codes are different in every market,” explains Greg.
“The available building materials are different. The building practices are different, and you can't be in this business without understanding those local markets,” says Greg.
Want Even More Insight?
There’s still opportunity ahead for lumber dealers, especially when they understand their customers’ needs and the markets they serve. Staying on top of local trends and keeping up with industry updates is the first step towards long-term success in lumber.
Be sure to check out the full interview with Greg for further discussion and a look into what’s ahead for building materials.
Don’t forget to subscribe to the podcast at venveo.com/podcast to stay on top of the changes in our industry.
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