Purchasing Strategically For Maximum Profit

Purchasing strategically for maximum profit

As material costs continue to rise in the U.S., builders must leverage the purchasing function to boost their bottom lines. Here’s how strategic purchasing can help your residential construction business.

Quality assurance: Smart purchasing does not mean prioritizing price above all else. No matter how much money a contractor saves, if quality does not meet building requirements, he or she has paid too much.

For instance, a builder is bound to face extra costs if a framer must waste time sifting through warped or split 2x4s looking for an acceptable choice. What’s more, if a poor-quality stud is accidentally used, replacement will lead to additional unnecessary costs. At the same time, there’s no need to overpay for a perfect, knot-free 2×4 that will never see the light of day. Ultimately, a builder must rely on experience and good judgment to make strategic purchases that won’t result in ongoing costs.

Cost minimization: Successful builders view any price increase as if it’s money being pulled from their own pockets. To aggressively keep costs down, a builder must adopt a certain type of mindset that will challenge assumptions, ask questions and require validation for the reason behind a price increase. Saving just a few percentage points can mean the difference between making a project work or not. That’s why it’s so important to exercise due diligence instead of rushing through purchasing decisions.

Risk mitigation: Smart purchasing means assuming overhead that’s competitive in the marketplace, with no sacrifice of quality, safety or capacity. Sometimes this means broadening the suppliers, material specs, or trade base; other times, it means single-sourcing a supplier, material or trade category. Whatever the case, strategic purchasing requires a dynamic approach that calls for constant evaluations, along with corrective actions that mitigate risk. This means reevaluating your suppliers on a consistent basis to determine if they are still the right choice for your evolving needs.

Capacity management: A smart purchaser ensures that he or she has enough capacity within each trade category or material to meet customer commitments. This means targeting new sources of capacity and working with trades to develop additional capacity as needed. To do this, you may need to meet with trades in the field, attend local home building events or investigate competitive job sites to identify new sources of supply.

The Value of Networking

To prioritize safety, cost, quality and cycle time, good purchasing professionals work hard to establish strategic partnerships with distributors, manufacturers and trades. By forging long-term relationships with the right people, builders are able to minimize overhead without sacrificing quality. At the same time, savvy purchasers are also not afraid to make changes when necessary. They also don’t fall into the trap of assuming there’s just one acceptable brand of material or only one trade capable of installing it.

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