The consolidation of the homebuilding industry is meant to continue and to have profound impacts on the forest products industry. It is changing the way houses are built as well as the relationships between building materials suppliers and home builders. Along the consolidation way, builders are also gaining more purchasing power as evidenced by the lumber consumption of the Top 100 builders, estimated to near 7 billion Board Feet.
More than ever before, large homebuilders are considering direct and longer term agreement with suppliers of lumber and OSB. It is expected that, due to the emergence of longer term and more direct purchasing agreement, collaborative practices become more developed. As far as building techniques go, we assume that the componentization of the housing industry will keep its advance, especially in the large builder segment. Componentization not only brings more off-site fabrication, but it also relies on a higher engineering content in the housing construction process.
Currently, purchasing agreements are short term based either for lumber, structural panels, engineered wood products, roof trusses and prefabricated walls. However, when questioned about the future of their purchasing agreements, respondents clearly showed a propensity to develop long term agreement. Indeed, every participant to this study pointed out to longer term agreements with suppliers and, in some cases, raised the possibility of more exclusive arrangements. This observation was further confirmed in site visits.
While centralization of the purchasing process is not the preferred choice of every large builder, we hypothesize that the specifiers will increasingly be centralized in the future in the wake of national purchasing agreements. Meanwhile, it is clear that regional offices will continue to have their word to say. Materials selection is not a one way process from top to bottom, but the head office is likely to be involved even when the process is regional.
As of now, most of the interactions between large builders and their suppliers may be summarized as information exchange. This indicates a fairly low level of inter-firm co-operation. However, the majority of participants expect either a shorter supply chain, more direct relationships or more partnering over the next five years. In turn, information and communication technologies, either for fund transfer of business planning, will spread out.