By: Guillermo Salazar • 16 July 2024

Your Fired: When a trade fires a homebuilder

Background

Last week, I spoke with a trade supplier who had just severed ties with a homebuilder. This homebuilder had 96 planned (but not contracted) units and now needs to find a new HVAC supplier.

Growth and Focus

The trade supplier has experienced rapid growth, expanding by 150% in the last six months. They are now one of the largest HVAC installers in their region. Despite their growth and ability to attract talent, they have had to maintain profitability per truck. Therefore, they chose to focus only on the most profitable builders and let their homebuilder business drive their B2C business.

The Builder's Importance

This particular builder was one of their top 10 customers and a key account. The relationship at the executive level was strong, and bills were always paid on time. However, project and service coordinators noticed that this builder required more callouts than others. While projects were completed on time, each service request often required multiple trips.

Analyzing the Problem

The service coordinator reviewed a list of non-chargeable trips and applied a call-out rate to each. They discovered that warranty costs were 25% of the total service margin (excluding parts). Many trips were due to user errors, such as dead thermostat batteries or unchanged filters. Collecting this data was challenging and time-consuming, as it relied on technicians' memories. It became clear that the builder was over-consuming truck rolls.

The Root Cause

Trades depend on the data provided by builders. Both trades and builders are short on talent and aim to complete tasks quickly, leading builders to pass all service requests to the trade. Often, resolving an issue required two trips: one for triage and one for resolution. This significantly offset the profitability of construction work. Service requests, being unplanned, are naturally more expensive and disruptive, affecting the delivery schedules for other builders.

Service Request Examples

Common service requests included issues like "heat won't turn on." Builders' service coordinators, aiming to expedite the process, passed problems downstream without educating or deflecting homeowners. They provided little practical information about the issues. This is a common complaint from the trade perspective, highlighting how builders handle data.

Consequences and Lessons

To get better data, the problem needs to be seen, which costs the builder time and personnel—both scarce resources. Thus, the problem was passed downstream to the supplier. The supplier, fed up with bad data, fired the builder. Now, the builder must find a new HVAC supplier for 96 units in a tight market, risking delays, increased costs, and potential lawsuits.

Conclusion

This situation exemplifies the question of "whose problem is it?" The builder is now feeling the pain, while the trade supplier has other options.

Avoidance Strategies

1. Data: Improve data collection and sharing between builders and trades.
2. Upstream: Educate homeowners to reduce unnecessary service requests.
3. Feedback: Review business with your suppliers / trades regularly so you can mitigate operational issues upstream!This is related to this post Builders & Trades: Owning the service fumble.

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