Volume 46, Issue 6 - July/August 2007

 

Date of Arrival
Door and Window Distributors Demand On-Time Delivery
by Michael Collins, senior associate with Jordan, Knauff & Co., an investment banking firm that specializes in the door and window industry. He may be reached at mcollins@jordanknauff.com. 

An increasing level of competitiveness in the door and window industry is leading to changes in distribution systems. Some of the trends affecting distribution systems give manufacturers and their distribution partners conflicting purposes. Ultimately, though, a well-constructed distribution system can be a source of significant value to owners of door and window manufacturing companies.

In an industry where revenues have declined from previously high levels and where competition is increasing, it is natural for manufacturers to explore ways to decrease inherent costs associated with distribution. This is certainly true in the door and window industry, and we have heard of a number of companies that are increasing their efforts to transform from three-step to two-step distribution. Companies that succeed at this are getting straight to bottom line savings while eliminating an additional step between themselves and the final customer.

Another distinct trend among manufacturers is the effort by regional companies to expand until they have a national footprint. In doing so, they make themselves more attractive to national homebuilders and big-box retailers. These groups are in the process of consolidating their purchases among a decreasing number of suppliers and often prefer to buy directly from manufacturers.

A List of Concerns
Distribution channel members, such as door and window wholesalers and retailers, have their own list of concerns and respond to a different set of industry forces. Many of these distributors have small- and medium-sized homebuilders among their customers. 

The concern of delayed materials flows back up the distribution channel, placing manufacturers under significant pressure to deliver every order on the promised delivery date. Additionally, door and window distributors view service problems, caused by product defects, as a misuse of time that should be spent finding new customers. The pressure on manufacturers to deliver products that are free from defects and to decrease lead times cannot be exaggerated. Manufacturers with shorter lead times are likely to become the providers of choice when wholesalers and retailers make recommendations. 

In our recently released Door & Window Industry Benchmark Survey for Mid-Year 2006, we examined lead times among manufacturers. The chart on the next page illustrates the differences in lead times among different product areas and companies of varying sizes. The largest companies in our survey reported lead times that were significantly shorter than their smaller competitors. As a result, smaller companies often pursue niche product areas, where longer lead times are more likely to be tolerated. 

The Chinese Source
Another significant trend among door and window distributors is their exploration of sourcing products from China. Whenever we present research regarding the coming wave of Chinese competition, we often receive inquiries from door and window distributors regarding sourcing products from China. Sometimes these companies are interested in additional sources for hardware and other accessories. Other times, though, companies are interested in selling imported windows under their own brand name in a private-label approach. Chinese manufacturers are eager to do business with these companies. 

American distributors can help a Chinese manufacturer remedy a serious shortcoming—a lack of understanding of the U.S. market. By serving as the interface for American door and window buyers, U.S. distributors will accelerate the rate at which Chinese door and window products are introduced in this country. 

On a related note, manufacturers have begun exploring the introduction of a distribution element to their businesses. For example, a traditional window manufacturer may come to recognize that, if they have a high-quality line of doors to offer, they can make additional sales through their existing channels with relatively little effort. Convincing a satisfied window customer to also buy doors can be easier than winning a brand-new window customer. 

For these companies, it makes little sense to attempt to build a door production line from the ground up. They can source doors overseas at prices so low that even a feeble attempt at distributing a line of doors would be profitable. A note of caution, however: we have talked to several companies that, after receiving samples beautiful enough to hang in a museum, have received containers of defective doors from China. 

When the defects were brought to the Chinese manufacturer’s attention, it refused to stand behind its products. The difficulties involved in identifying an appropriate manufacturer make sourcing imported products a difficult decision.

A Natural Tension
There is a natural tension, despite the strong working relationship involved, between the goals of door and window manufacturers and the companies that distribute their products. However, a well-built distribution network can serve as a key source of value for a manufacturing company. In an industry that operates largely without long-term contracts at the finished product level, a network of relationships with the distributors that interact with end users is critical. We have studied more than 150 merger, acquisition and capital placement transactions in the door and window industry that occurred between 2000 and 2006. The primary reasons given for choosing to undertake these transactions, in nearly a quarter of all cases, included aspects of the distribution channels of the companies involved. 

The trends affecting the door and window industry over the next several years will change the strategies and tactics of manufacturers and distributors alike. We can be sure, though, that a network of relationships with proactive distributors will continue to be critical to manufacturers. Just as vital to distributors will be relationships with a select group of manufacturers capable of delivering defect-free products on the promised date. 


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