First published on the Digitalist by Folkert Haag
The traditional building products value chain is transforming at breakneck speed. For decades, an indirect sales channel dominated the building materials industry. Wholesalers and retailers owned customer relationships and collected customer data. Building materials producers had little visibility with their end customers (e.g., contractors, developers, architects, do-it-yourselfers) and interacted primarily through wholesalers and retailers. Now new sales and distribution models are transforming the building materials industry. Technology is enabling producers to bypass wholesalers and retailers and instead interact directly with the end consumer.
It’s not just building materials producers who are pushing for this change; end consumers are too. Increasingly, end consumers are willing to purchase building materials through the Internet and mobile apps, just as they do for any other household products. In countries with high mobile Internet saturation, like Indonesia, this purchasing trend is even stronger, reports The Boston Consulting Group.
Value chain disruption impacts profitability within business segments, alters the relationships between value chain partners, and increases the importance of real-time interactive processes. In order to remain competitive, building products companies must understand the impact of value chain disruption on the marketplace. A full understanding allows for the robust development of new business processes that harness the power of value chain disruption for long-term strategic growth.
The new seller: buyer interaction in the building materials industry
What does a digital sales process look like in the building materials industry? Consider this example: Ashley, a contractor, is meeting with a client to discuss his upcoming bathroom renovation. Rather than visit a distributor’s showroom, Ashley uses her iPad to present the client with a 3D visualization of the bathroom remodel. This visualization includes different options for shower tiles, lighting fixtures, and ceramics. Ashley then uses a smartphone app to calculate the final material cost based on her client’s selections. Ashley and her client decide to place the order with the building materials producer. Ashley uses the app to track the order production and shipping in real-time.
The producer uses the app to bring additional value to Ashley. He sends a how-to video demonstrating proper installation technique. He makes additional materials recommendations based on Ashley’s project and her client’s preferences. The producer also uses information about Ashley’s buying behavior, along with other contractors in the region, to refine his commercial strategy. This is just one example of how digitalization is disrupting the traditional value chain and creating new opportunities for strategic growth.
Reimagining business processes across the value chain
Already, four key business model changes are emerging across the value chain that are driven by innovation, customer experience, demand sensing, and shop-floor operations:
1. Green innovation
Customers demand constant innovation to keep up with the latest trends. For example, many are willing to pay higher prices for green products made from renewable sources. The green building sector is among the fastest growing sectors worldwide. Upfront investment in green construction increases a building’s value, with an average increase in value of 4%, reports the U.S. Green Building Council (USGBC). In 2016, nearly half of all nonresidential construction will be “green” and more than 13.8 billion square feet of building space will be LEED-certified.
But building products companies face an additional hurdle. It’s not enough to simply meet customer demands for greener products. Companies must also comply with rapidly evolving regulations. Building professionals are looking for solutions that enable them build easier, faster, and stronger while also meeting the ever-changing regulatory requirements. Being a leader in product innovation can equate to increased market share.
2. Customer experience
Supply chain partners in the distribution network, as well as end consumers, expect instant information access delivered via the channel and device of their choice. Building products companies must provide information tailored to stakeholders based on user roles, needs, and interests across all touch points. Doing so is critical to enhancing the customer experience, strengthening relationships and boosting revenue.
3. Demand sensing
From suppliers to POS, a tightly connected supply chain enables building products companies to make smarter inventory decisions and improve demand management. This is accomplished by using predictive analytics to help determine demand according to item, location, or customer segment so companies can improve product availability and reduce expediting costs. With real-time information from trucks, warehouses, and traffic conditions, the whole supply network can be optimized, even when the goods are already on their way.
4. Shop-floor operations
Capturing and analyzing data from machines, vehicles, and products allows for better predictions, simulations, and decisions. Automation and connectivity across the plant floor help reduce error rates, improve efficiency, cut operating costs, and significantly change the way manufacturing personnel act on the plant floor. In the example above, I discussed how contractor Ashley used her producer’s smartphone app to monitor production and shipping timelines. Shop-floor operation sensors provide the real-time information that powers these apps. Additionally, shop-floor sensors can help proactively predict product and asset maintenance concerns, reducing downtime and streamlining production.
Next steps: New opportunities from value chain disruption
In order to maintain a competitive edge in a rapidly evolving marketplace, building-materials companies must apply digital technology to the customer-facing stages of the building materials value chain: marketing, sales, and logistics. SAP is powering this transition with solutions that simplify transaction processing, support innovation and collaboration, and accelerate business response to opportunities and risks.
For example, Sloan Global Holdings uses SAP Hybris Cloud for Sales to provide its sales team with a wealth of information when sitting down with customers.
“SAP Hybris Cloud for Sales significantly improves the effectiveness of our sales force,” says Tom Coleman, chief information and process officer and Sloan Global Holdings. “Customers are now going to be recipients of integrated information in the moment of need on any device, anywhere, and this is critical to the organization.”
New cloud-based technologies that provide mobile, real-time information and integrate data from a variety of sensors will play a critical role in supporting the new sales and distribution model and re-imagining business processes.
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