The Price of Oats

by Mark Hodges

The residential building product landscape is littered with unfortunate and expensive tales of products gone bad. If you’ve been around long enough, you likely remember fire-retardant treated plywood. Treated with chemicals to reduce the movement of flames from one multi-family roof to another (a fine idea), the product was found to delaminate the OSB sheathing, causing unsightly bulges in roofs and ultimately degrading to the point of being hazardous. Thousands of roofs had to be replaced at enormous cost and inconvenience to homeowners.

You need not to have been around as long to recall Chinese drywall. Laced with formaldehyde from gypsum quarries, the product caused massive corrosive damage to wiring, appliances, HVAC coils and even foil-backed mirrors. Remediation required moving families out of their homes (and housing them), taking the homes down to the studs and rebuilding the entire interiors of affected homes. I had the fun of working with over 40 VERY unhappy homeowners to solve this major problem, and suffered the inevitable evening news coverage that followed.

I’m reminded of an old joke where a man buying oats asked the farmer how much he charged: “That depends on whether you buy them before or after they’ve been through the horse.”

It’s no secret that the price of an inferior product differs significantly from the cost once the deficiencies become known. One more example is the now defunct window manufacturer (who will go unnamed), whose irresistibly priced windows quickly began to suffer broken seals and shifting in the openings, creating havoc in thousands of homes. We all know that you get what you pay for, as these harsh lessons validate.

The good news is that there is much more readily available information today about product quality, thanks to the internet (and great tools like Avid’s GoTour and GoSurvey). The trouble is that purchasing managers are often incentivized to buy the lowest-price product or service, intending to “save the company money” in costs. This seemingly sensible objective results in countless poor and expensive decisions. But I’ll leave that discussion to others.

Instead, I’ll focus on the intangible costs of products that many homebuilders don’t consider. Here is a list of some of the most overlooked costs that don’t get calculated in the ultimate “price” of the products you buy:

On-time delivery – No matter how good the product, if it holds up construction because the manufacturer fails to manage their production and distribution processes, you’re spending money on “empty house days” while waiting for delivery.

Correct delivery – If the cabinets that do arrive are oak instead of the ordered pine, or don’t fit properly in the kitchen openings, you’ve wasted even more time and risk missing your closing dates, which is one of the most important influencers of customer satisfaction.

Changing specifications – If the manufacturer is constantly changing specs on their products without informing you, or you neglect to provide up-to-date model displays, you’ll end up selling products that your customers didn’t buy. And believe me, they’ll notice.

Poor warranty service – If your manufacturers don’t stand behind their products (and instead hide behind flimsy warranties), your buyers won’t blame them, they’ll blame you. Service performance is critical, no matter how good the product normally is – things break.

I could go on, but won’t. The point is that choosing a product based on price alone fails to take into account many potential factors that could increase the ultimate cost – with quality and performance leading the way, but with quality of service coming in a close second. It’s a relatively easy lesson to learn, but a very difficult one to follow, if price is leading your company’s decision-making processes.

So, the next time you’re buying oats, be sure to take delivery before they’ve gone through the horse!

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