Data management has been on the minds of us humans for a very long time. Take for example the ancient Inca civilization. Its people used a device called a quipu that consisted of fiber strings onto which they tied knots in intricate patterns to represent data about everything from taxes to census records to military movements.
While we don’t have to rely on knots any longer, data management today is just as important as it was to the Inca 1,000 years ago. Unfortunately, the ability to manage that information can be a daunting task for LBM dealers, and many don’t know where to begin with unraveling those data knots. According to leading technology experts, however, by better understanding the leading trends and tech concerns for the LBM industry, dealers can successfully weave their way through, creating a better data landscape for themselves and their customers.
A year of disruption
Like its preceding year, 2022 had more than its share of challenges. The continuing influence of the COVID-19 pandemic, labor and supply chain disruptions, and fears of inflation and recession all created pressure across every facet of the LBM industry. “It’s undeniable that the past twelve months have been marked by continued economic uncertainty in the form of layoffs, a looming recession and a tumultuous housing market,” says John Maiuri, president of the LBMH division of ECI Software Solutions. “As a result, we’ve seen a spotlight on technology for the LBM industry to help dealers better manage market challenges.”
It’s an environment that’s forced LBM dealers to look for innovative solutions to improve what they do and how they do it. “The last 12 months have brought significant changes in technology needs for building supply dealers due to continued shifts in consumer behavior,” says Graham Rigby, regional vice president of Epicor, pointing to factors such as e-commerce, logistics, and payment processing as disruptors.
Luke Strait, vice president of Precision Estimating, Inc., also sees the importance of innovation, especially in the face of disruption. “Higher interest rates, labor shortages and insecurity in the last twelve months are pushing LBM dealers to do more—better and faster than ever before. Having solutions that they can trust is key in this environment. Having solutions that they can trust and that work well together… that’s gold.”
To downplay the impact of those disruptions would be difficult indeed, says Yaser Masoudnia, CEO and co-founder of BlueTape. Similarly, it’s hard to over-stress the benefits technology tools can bring to the bottom line. “The last twelve months have seen a lot of volatility in material prices and uncertainty about U.S. economics,” he explains. “With the housing market slowing down and interest rates increasing, LBM dealers need to take advantage of technology that will help them combat these fluctuations and prepare for whatever is coming by mitigating their exposure to risk. Most LBM dealers are exposed to significant risk due to the fact that they manually process their credit accounts and run credit accounts themselves. Any market effect on dealer customers will in turn increase risk for the supplier’s receivables.”
And while technology investments can be daunting for the LBM dealer, the benefits technology can bring aren’t just long term. “The current market cycle is driven by the rapid rise in interest rates—the cost of capital to run our business, the cost of mortgages, and equity lines of credit slamming builders and homeowners,” explains Valerie Hansen, founder and chair of BuyMetrics. “Interest rate-driven cycles are not new or even rare. Industry veterans were quick to focus on cash flow, reinforce core strengths, while differentiating themselves from the competition. Ideally, in a capital constrained market, investments in technology will enhance areas of strength and provide near-term benefit to cash flow, the bottomline, [and] pay for themselves in weeks versus years.”And it’s not only receivables that’s been impacted; every aspect of LBM business has been impacted. “Honestly the only way to answer that question is to ask what hasn’t been disrupted by technology in the last year? Probably nothing,” says Steve Yates, executive vice president of Buildxact. “If you look at a dealer’s business, there isn’t one thing that remains untouched by new technology—from AI to ChatGPT to warehouse management software, tracking mechanisms, advances in autonomous vehicles, sales platforms, and the list goes on and on and on.”
E-commerce is here to stay
When it comes to technology solutions, industry experts consistently point to one rising star: e-commerce. Embraced at a near-rabid pace during the advent of the pandemic, e-commerce shows no signs of receding, and in fact can bring unlooked-for benefits.
“Now that we’re past the initial ‘e-commerce explosion’ from the pandemic where we witnessed digital commerce take off as a result of social distancing and changing consumer preferences, our engagements with LBM leaders suggest broader expectations of digital technologies that can help them further adapt to the market,” explains ECI’s Maiuri. “For example, at the center of every modern e-commerce strategy there needs to be a focus on data and how it leads to insights that can improve opportunities for business growth. Many dealers are struggling with generic e-commerce solutions that do not address the specifics of LBM and hardware & home center customer engagement. In addition to high-quality product data, ease of administration and real-time data connections to the dealers’ point of sale system have become crucial pillars of success for every successful e-commerce strategy and more LBM dealers are looking for the proper technology to deliver on trade and consumer expectations.”
Simon Sikora, director of e-commerce for DMSi Software, points out how effective e- commerce sites can serve as a powerful, dynamic marketing tool. “When users visit, they should see relevant products and information. Creating user journeys for different customer segments helps customers find what they need more easily. It makes the site more enjoyable and helps grow sales, a win-win.”
Marc Hamer, executive vice president and chief information and technology officer at Orgill, also sees the demand for e-commerce and online ordering as a growing trend. “Ever since COVID-19, more and more customers are opting for online ordering and delivery of building materials,” he says. “As a result, LBM dealers have had to invest in e-commerce platforms and digital storefronts to meet this demand. Some LBM dealers have opted for contactless payment methods such as Apple Pay, Google Pay, or contactless credit and debit cards. This change has required some to upgrade their payment systems and equipment.”
With the increased use of e-commerce comes the fees associated with credit and debit card payments, Ryan Ayers, CEO of Suppli, and it’s an issue LBM dealers need to pay attention to. “Credit card usage has also increased (now over 60% of payments) and is only headed higher as economic volatility remains elevated,” he says. “Dealers need to leverage technology to lower the cost of accepting cards—whether that’s passing along a fee to customers, using software to optimize the interchange rates they’re paying, or offering online ACH.”
The rise of the machines
While it may sound like science fiction, experts say the use of artificial intelligence (AI) and machine learning (ML) for the LBM industry is on the rise. “AI and ML are being used in various industries to automate and optimize business processes,” explains Epicor’s Rigby. “Building supply dealers can leverage these technologies to optimize their supply chains, improve logistics, and enhance customer experience. From smarter software to help manage and predict product demand and ordering to robots for inventory management, the presence of AI and ML will continue to expand. Customers today are taking advantage of the opportunity to apply AI to intelligently learn and match information from multiple data sources such as emails, scanned documents, or network folders.”
Orgill’s Marc Hamer agrees with Rigby’s insights. “AI and ML are already being used in various industries to improve efficiency and automate processes,” he says. “LBM dealers could use AI and ML to optimize their supply chain, automate inventory management, and even provide personalized recommendations to customers.”
While some view AI as a technology that’s fraught with peril, there’s no doubting its use is on a significant upswing. For example, according to a recent report by Global Industry Analysts, the global market for artificial intelligence was an estimated $46.9 billion in 2020 but is now projected to reach a whopping $341.4 billion by 2027. “Technology is the link between data and automation,” says BuyMetrics’ Hansen. “Machine learning and predictive analytics are not new. What’s new is the pace of innovation. New products, new AI automated tools, new methods of production, are bubbling up all across the construction industry.”
And rather than being used as a replacement for people in the workforce, technology experts see AI as a tool used in conjunction with the human element. “ChatGPT and other AI are finally breaking toward the mainstream,” explains Matt Meyers, CEO and founder of Yesler. “Applications for LBM beyond the novelty of a conversational bot are coming. AI will supplement the work of the people in our industry, not replace them. The key question is not, ‘When can I replace my human employees?’ The question is, ‘How can I increase the capability and capacity of the people in my operation?’”
Delivering solutions — literally
Being able to provide product to your customers is one thing; getting the product to them while enabling them to track where their orders are in process is another. While traditional fleet management can bring a world of logistical headaches for the LBM dealer, today’s technology tools hold the promise to ease the process.
“Consolidation in the industry has left LBM fleets struggling with the best way to share resources across multiple locations in single geographic regions,” says Steven Kalnitzky, senior product manager of Appian from Trimble. “Software vendors should be able to account for this complexity allowing seamless ways to move resources between locations within a region and automatically account for transfer orders and multi-domicile pickups and deliveries. This allows LBM distributors to get the most out of their assets and drivers.”
Orgill’s Marc Hamer agrees. “There is an increased demand for an integrated solution that connects the supply chain from the customer who owns the project to the contractor that is building to the LBM dealer that is providing the materials. This end-to-end integration will allow a much more efficient and cost-effective building experience.”
It’s thanks to the Internet of Things —the interconnectivity of physical devices, vehicles, and buildings via embedded electronics—that enables this connectivity says Epicor’s Rigby, and it’s an area that LBM dispatch and delivery can benefit from. “The use of geofencing capabilities can help builders understand when deliveries have happened and notify the yard when a truck has left or is returning so the team can prepare for the next reload, saving time and driving efficiency by prioritizing the work and alerting employees when they need to get started on the next pickup.”
Seeing the big picture
Rather than thinking of technology tools as silos, each providing a single solution for a single problem, industry experts recommend taking a more holistic approach through systems integration, part of which comes from being able to easily access data to build business.
“Access to data and the technology to access it has made finding customers, understanding their activities, reaching them, and providing them the right support easier and smarter,” Buildxact’s Yates comments. “This is definitely the aspect that we find most dealers focusing on—they are hesitant to embrace technology because they think that it takes away the human touch and the value that they can deliver. However, many of them are starting to understand that with strong leadership and good management of the technology, it can offer the right path to deliver value more effectively and efficiently than ever before.”
Access to data—both for the dealer and the customer—brings a growing imperative for security, and LBM dealers need to be prioritizing privacy and data protection. “With more business conducted online, building supply dealers need to ensure that their customers’ data is secure and that they are compliant with data privacy regulations,” Epicor’s Rigby points out. “This requires the implementation of robust cybersecurity measures and the adoption of data privacy policies and practices. Many of our customers are implementing multifactor authentication processes and rolling them out to their employees to increase security and reduce the likelihood of a cybersecurity event.”
The big picture, technology experts say, is in seeing how to make processes easier for both staff and customer rather than more cumbersome. “Programs or systems that improve customer experience are more important than ever,” says Orgill’s Hamer. “Since the pandemic, supply chains are improving but are still not where they were or need to be. To mitigate this, LBM dealers have had to adopt more sophisticated inventory management systems to track supplies and manage their supply chains more efficiently.”
The technology front is a constantly changing space, and the growing trends touched on here only scratch the proverbial surface of the benefits LBM dealers can reap. Still, the best technology alone won’t bring wins; it ultimately rests with the LBM dealer. As Buildxact’s Yates reminds us, “Even with all this opportunity at technology, it doesn’t mean that dealers are embracing and adopting the technology. If dealers don’t start to evolve with technology soon, it’s certain that they will find themselves ‘flying through the windshield,’ especially considering that there are others out there that are leaning in and dominating because they understand technology and are leveraging it.”