There were lessons learned during the “Great Recession.” Although that seven or eight-year stretch was not a good time for builders — or for anyone associated with the building industry — those who survived learned, by necessity, how to scale back and adapt to changing times.
Among those lessons were:
- How to cut costs;
- How to improve efficiency;
- The importance of monitoring assorted trades;
- How to support associated trades for the good of all; and
- How to make the dollars go further.
We can take a page from retail as building economies continue to improve, because there are still lessons to be learned. Because we all know the cyclical nature of construction, it’s important to continue to pay attention to those “dollar-stretching” principles.
Decoding SKU Rationalization
While SKU rationalization may be an unfamiliar term to home builders, it makes just as much sense for contractors as it does for retailers. Sometimes also known as SKU optimization, it’s a simple concept that involves a decision-making process. “Pay attention to each individual product, and concentrate your efforts in areas that have the greatest effect.”
Essentially, the pricing strategy of goods (and services) is the basis of good business. SKU rationalization represents a change in strategy rather than a single response to a specific occurrence. It requires acceptance of the notion that the price of the product is less important that the costs involved in selling that product. Implementing ways to lower the cost of materials and labor in home building will increase profitability.
If you know the price tag — and try to negotiate a better price — of every stick and brick, you will have a handle on costs. If you streamline how you order, receive, stock, and use each of those sticks and bricks (and each piece of sheetrock, light fixture, shingle, faucet, floor tile and screw), you will be better able to control those costs. That’s the vital retail message:
- Pay attention to the barcodes (the individual price of each item).
- Know what you use and how many of each item it takes to build a house.
- Eliminate waste.
- Introduce ordering efficiencies so building materials don’t hang around the construction site any longer than necessary.
- Be aware of “shrinkage” and damaged goods; work to eliminate both.
- Do your best to hang on to “good people.”
- Consider your market and know your customers.
- Track user response and respond to trends.
Exporting the Message to the Jobsite
Applying SKU rationalization techniques is, essentially, common sense management.
If you understand the Pareto Principle, alternatively known as the 80/20 rule, you will take a new look at your business model to assure that you concentrate your efforts in areas where they will generate the best, most profitable outcomes. It’s the same adjustment in tactics that a retail store makes when it has clearance sale. Eliminate those materials, efforts and policies that simply “take up shelf space.”
A couple of the other lessons learned during the recession are that automation and technology are not the enemy, in business or in home building. At Aterra Designs we have incorporated new computer technology and interfacing capability in order to manage selections, track pricing, simplify ordering, and keep everyone on the same page. We have in place the tools and procedures that make lighting and electrical design more efficient so that we are better able to serve our customers and “deliver the goods.”
How can we help you? We believe we have the vision, the expertise and the technology to do just that.