195. Supply Chain Efficiency With Steve Yates

Welcome to another episode of Professional Builder Secrets. This episode was recorded live at the International Builder show in Las Vegas. But the content is highly relevant for builders. Today I interview Steven Yates, the CEO of BuildXact, and we talk about how builders can leverage technology for better collaboration throughout the supply chain. We cover things like why pre planning is critical for a successful construction project, the biggest challenges builders face when managing supply chains, how AI and evolving technology are reshaping builder supplier collaboration and the role BuildXact plays in helping builders stay ahead. Enjoy the episode. This episode of Professional Builder Secrets is brought to you by Apparatus Contractor Services. Apparatus provides full scope end to end QuickBooks, Precision Construction accounting and and CFO services for residential builders. If you feel like you can't completely trust your weekly and monthly financial reports or you feel like you're flying blind, Apparatus will rebuild and operate your QuickBooks accounting system and give you precision construction accounting capability you can trust. Learn more@apparatusteam.com or on the APB Rewards Partner Directory.

If I'm a production builder, I basically design one box and I seek to build that box. I might have a couple of alternatives 5001000 times this year so I can go to my supply chain and I can say, hey, I'm building a thousand homes this year and they can negotiate at a client level once every 18 months. If you're a small business builder, you can't do that, so you have to start over. What AIA is going to do is it's going to scrape up two to eight and do them for you. We have wonderful customer of ours out of Tennessee. He expresses that he's going to be on stage tomorrow. He's like, this is like having two or three additional employees.

Yeah.

So this meaningful when you're a small builder.

Professional Builder Secrets live with Steven Yates from BuildXact. Steve, welcome to the show.

Thanks Will, Good to be here. Thanks for the invitation.

Yeah, great to have you. A fellow Australian, but most of your business is done here in the US now, so can you give a bit of a background on who you are and what you're doing at the show?

Yeah, I am a fellow Australian, but I've been living stateside since 1995, so I'm both, I'm American and Australian and it's a really interesting perspective for it to have a global view of what's happening in the construction industry and what challenges builders are actually facing out there on a day to day basis.

Tell me more about your background because I know you've been in the industry for almost 20 years. How does that fit into what you're doing today?

Yeah, so my background is in the construction space on the supply side, so wholesale distribution, channel distribution. So I've been involved with quite a number of large LBM dealer distribution strategies over the years. And so there's a really good background to bring to BuildXact. And to look at how the supply chain, broken or not, is really impacting a builder's ability to be able to put a fit for purpose product in the ground on time and on budget.

Well, let's dive into the problem we want to talk about today, which we touched on just backstage for a moment there. I think it comes back to this core idea of pre planning for a construction project and just being prepared. Can you talk to me about what you see in the industry as a challenge in that space?

Yes. Well, you know, I think the first thing is most people would accept, you know, if project looks ugly in the beginning, it's probably going to look pretty ugly at the end. Right. Which you don't want. Which you don't want. So measure twice, cut once. We all heard this from our fathers and our grandfathers, right? Pre planning is really critically important. And in fact, that's where BuildXact's technology is focused. The ability for a builder to get the information they need when they need it, so that they can become better decision makers. And what happens if you're a better decision maker, more likely to be successful with your project and more likely to be successful with your business?

And what does that planning phase look like? I mean, you touched on BuildXact, obviously, which is a portion of plays, a portion in that planning phase. But can you dive into that a little bit more? And where you see the bottlenecks?

Look, I think there's an essential bottleneck and I'll try to be as crisp with this as I can.

Feel free to go as broad as you want.

BuildXact's been around since 2011. We have thousands and thousands of builders working in the residential construction space and they tell us really clearly what the problem is. As good as they are at using our product as software to manage their enterprise, to manage their projects, they're still dependent on as many as 55 downstream stakeholders to put that fit for purpose product in the ground. That's a lot of people, that's a lot of communication, and generally that communication is pretty poor. So builders don't have the information they need when they need it. It could be establishing a statement of work, building an estimate to submit a proposal to a new client, managing actual cost against estimate costs during a project, the quality of the information is generally fairly poor. And I'll give you a data point of a couple of data points. We know from research that once you're outside a build. Exactly. Once a builder gets a statement of values, puts their overhead and profit or overhead and margin into a project, they then go ahead and add 20%, which is just fear factor. That 20% is there because they are just really concerned about the quality of the information they have when they're being asked to submit values for a job. When they use BuildXact, they stop putting that 20% on because they're highly confident in the fidelity of the data that they have. They stop putting that 20% on, they start winning more work. And the average builder using BuildXacts winning essentially 25% of every jobs that they quote out there.

Yeah, actually we were talking about this on an earlier episode of the of the podcast in terms of getting that estimating accurate so you can price effectively and you can then factor in your fixed costs and all this kind of stuff so you can be profitable as a building company. Talk to me more about how that.

Happens, that other data point that I talked about. We also know that builders are spending as many as 26 hours per week in the desks, on the desks, trying to figure out this quoting. And I think the CSI Master Format specification now is 44 individual categories to build a single family home. Sometimes it's a question of not what I know, but it's what I don't know. And so BuildXact has partnered with, for example, in North America, Home Depot, one of the largest building material suppliers in the industry, so that our builders can get a live feed of Home Depot's inventory and specifications in the platform while they're quoting and estimating. Furthermore, Home Depot will work with our builders to actually build out templates and assemblies based on the way they build on their means and methods. And those templates and assemblies are interlocked with the inventory. And then buildxactors built a capability with generative AI to actually go through that data within buildxact and the data within Home Depot to make sure that our builders are not missing important values when they do build work. The result of that is once they start work, they've pre planned really well. They don't find they're on a job site and they've missed the specification and then they don't have the trouble of trying to recover that cost or eat into their margin, solving for the fact they've missed a specification in their statement of work.

Do you find that Home Depot is representative of enough of the market from a product perspective that builders are using in those 44 categories you mentioned?

Oh, that. Look, Home Depot get more than 53% of all transactions in the building material space. Now, that's not dollar value representation, but they are in the market. Traditionally, builders have tended to invite or use Home Depot later on in a project. But Home Depot certainly has all of the products. From concrete work all the way through to frame and trust. They have all the product. The question is, how do they deliver that product to builders in a way that the builders can consume efficiently to incorporate in their projects? So we're seeing a sea change with digital adoption as more and more builders are beginning to look to someone like Home Depot in partnership with BuildXact and the construction management capabilities that BuildXact deliver to actually solve their supply issues.

So for custom builders that might be using multiple suppliers rather than going through Home Depot primarily, how would that work and in the estimating process, use Home Depot as a benchmarking tool or would they integrate with the other suppliers as well?

All of our research tells us that price is not the primary consideration here. Right. It's about access of good quality information. Now, builders using our platform are not forced to use any particular supplier. They ultimately have full discretion over which suppliers they integrate. It just so happens that Home Depot, it would seem to us, is more committed to digitally solving these pain points than almost any other supplier out there.

Yeah. Okay. You mentioned the right information there. And I think that's kind of what you're talking about when you're like pulling in from Home Depot into the estimating process. Can you go back a step and just talk to me about the problems builders face when they don't have that right information?

Yeah. All right, so let's just take you to keep this really simple. That 26 hours, let's say in building out a statement of work that you have a question. On average, you have to wait three days. And this is all suppliers in the market, you have to wait three days to get a call back. All right, so imagine you're working through and how many questions you might have. Even the simplest thing. And what we also know from research is when that request goes into the supplier organization, they need as many as six internal comms in order to actually provide that answer to that question. So there's noise and poor productivity on that end as well. So when you actually use a platform like BuildXact and you're actually using live inventory feeds a you more probably don't have to even ask the question because it's answered there for you. And everybody knows that when they're talking about a particular product, it's the same product, you know, up and down the supply chain from the channel distributor to the builder to the homeowner. So much more clarity and much more fidelity around what is actually going into projects.

Does it tie into and this is probably jumping into the product a bit more. Do you then tie into ordering as well or is that handled separately?

Yeah, in fact, the work we've been doing with Home Depot now we basically have created a unified experience for our builders. If you stand up a quote inside a BuildX act, that quote with a one push, one button click will actually auto populate inside your cart, behind your firewall in Home Depot. Ready for order, ready to order. So then you're now into the logistics space so you have visibility of when that order is going to come back. In fact, this is so effective and so efficient, Home Depot are offering an 8% discount to build exact customers using that ordering process.

Okay.

Because it's taken out all of those callbacks and all of that grinding work that both the builder and Home Depot are having to do to try to understand what is going into the specification.

Yeah, it makes a lot of sense. I mean from a user's perspective you're like estimating with the supply you're using anyway and then you're ordering all through the same system. Why has it not been done in this way before?

There's a report from McKinsey's, I think it goes back to 2017 that came out and made a statement based on the data that the construction industry had really had no meaningful productivity growth in the last 30 years or something. And then of course the obvious inference from that is all the construction industry are laggards. Right? And I think that's a word they used to. We actually at buildings that we look at that completely differently. We don't think that's on the construction industry or on the builders. We think it's on the technology companies who have failed to really understand what the pain points are for the builders. Look, our customers who are able to put fit for purpose product in the ground on time and on budget, they don't need a CRM tool that's been designed elsewhere and just dropped on top of the industry and say, hey, here's the construction management solution. They've got enough work. What they really need help with is the information that they need early in a project to make good decisions. I mean, after all, ultimately that's what all of us in business want to do, right? The more effective information we have, the more effective our decisions.

That term laggard. I'm interested to dive into that a bit more because the statistics do show that even though it's getting better, a lot of building companies still use spreadsheets for estimating. So do you think there is a component of the builders not accelerating as quickly as they could do or they just haven't found the solution that's right for them yet?

You know, I think for the most point the products aren't being delivered to the builders to actually solve the pain points. You get halfway there. But that halfway is no good. So just even go back to the view that BuildX Acts held since we were founded in 2011. What are the pain points? Does a builder have the information they need? When is the tradie going to or subgroup to turn up on site? Have we got the right materials? When are the materials being delivered? Is this project spec? Have I taken everything into account when there's a change on site? What other things that I can't currently see are going to be impacted in my statement of work that'll affect my billing when I come to sit down with my client at the end of the month. This visibility is a critical thing and there's far too few solutions out there that truly understand this and actually solving for it for the builder.

I think one thing I've observed is it's pretty hard for builders to understand what is the right solution for them though. I mean, even we're just at the International Builders show right now and there's hundreds of software providers providing project management to estimating and trying to do all in one solutions everything out there. So how does a builder understand where to start and what is the best solution for them?

Well, I think your first place to start is you've got to understand or interrogate what are your pain points. Do you accept that? If the project is not well considered and well planned, why would you want to go and get a job management solution? Because all you're doing is managing the problem that you created due to lack of planning.

Yeah, that makes sense.

So from that point of view, I think the solution would be how much visibility and accuracy can I get as early as possible in a project. And I think there's something really important to your question to discuss with the audience whether you are a production builder building 1,000 units a year, which a person I spoke to this Morning. Or whether you're a small business builder or a customer home builder, we call you builders. Quite frankly, a lot of the construction technology you're referring to that I look around, is really interested in those production builders and they've built technology for those production builders. So when the small business builder actually addresses that software, it's too complex and it doesn't solve their pain points. And here's why. If I'm a production builder, I basically design one box and I seek to build that box. I might have a couple of alternatives. Five hundred, a thousand times this year. So I can go to my supply chain and I can say, hey, I'm building a thousand homes this year. I want 3,000 water closets, I want 2,000 vanities, I need a thousand front doors, I need a thousand roofs, et cetera. And they can negotiate at a client level once every 18 months and have their statement of values, their bill of materials, all resolve. So what's their job then? What's their relationship as a builder? They're in a logistics business. Right. Because they're client level negotiation. If you're a small business builder or a custom builder or a remodeler, you can't do that. Every time you start a new project, it's de novo. You're starting new, it's a new box. So you have to start over. What is the bill of materials? What is the statement of values? What are the bill of quantities? And you're doing it fresh. So although you might be called a builder, your pain points and your business couldn't be any different.

Yeah.

And too few people in the industry really understand this. It's not nuanced as it sounds. It's a key thing. And so when a builder's out there looking for software, they need to ask that question. Is it really addressing my need as a small business builder or am I being asked to adopt a product that wasn't designed for me? Asking me to go to school for two or three weeks to actually learn how to use the product instead of having a product that intuitively solves for me.

So buildings up, for example, are you suggesting you're very focused on the custom builder market and that side of things?

Crystal, focus on the custom home builder and remodeler. Yes. In fact, if a production builder comes to us quite often, we'll say this is not a fit for you because their needs and requirements are very different than our customers.

You touched on AI earlier and there's this big buzz about AI for the last 18 to 24 months. Every tool's trying to integrate it into what they do. A lot of it's adding how much value, we don't know, but there is a lot of value there as well. Talk to me about how buildxacts using AI and where you see that ecosystem going.

One essential thing to understand about BuildXact is when we find our new customers and many of them are doing what we call three bids in a prayer. They send out a request for three quotes from suppliers or vendors, take whichever one they choose. They get a top line value without really any line item visibility and that's how they move forward. We really encourage, and our system is designed to help build is actually do all of their statement of values and estimating at a line item level. And we've been doing that since 2011. Why is that important to your AI question? Well, there's a lot of people supposing that AI is going to be a solution out there and they're using what's called a large language model to do that. So they're basically going out to the Internet and scanning for large language model information. Ultimately, that system fails and breaks down. A because you're getting information that's equally accessible to everybody else. B it's not necessarily accurate. Yeah, they make it up with our line Item data. Since 2011, we have a huge database at a line item level on every project. Billions and billions of one work and completed work, 2011 to now, 14 years. We point our AI agent at that data, which is proprietary, clean and very realistic about how a building's built. So it reaches in. You could ask it, what's an assembly for a stem wall that's 22ft long and it'll build that entire means and methods assembly for you on the fly. And then reach into a supplier who's integrated like Home Depot, pull their inventory out. You have a chance to manually edit that and adjust that how you want to see fit and push a button. Then it's in your cart, Home Depot ready for delivery. Extraordinary how efficient that process has become. Now, I think the real key difference is the quality of the data. So if any of you are looking at AI asking the questions, the key question you have to ask yourself is, what's it feeding on? Is it feeding on general information or is it actually working on a database of knowledge that's going to be relevant for my industry?

Yeah, you're talking about you've basically got a database of highly relevant information about every line item that a builder needs to use. Yeah, that's right. So how I mean, do you find the builders are using that in the customer process as well? Like when they're trying to pick materials and things that they will use?

Builders are reporting a high. You know, they're exploring, they're trying to understand how AI can help them, and they're using it as another kind of search, if you like, and sharing and using it to share information. I think, just organically, most of us are having a similar experience. Right. But in terms of using it for a real workflow, I mean, we've had an AI calculator in beta actually in the market now for a few weeks, and it's really quite extraordinary to see customers using it. The primary benefit ultimately is, what have I forgotten? What is it that I'm specking here that I forgot to include? Because that's going to come back to haunt me when I start this work. And I've got to go back to the client. I got to say, all right, we got to come back and ask for another $15,000 because I forgot something.

So builders are literally typing, what have I forgotten? Or they're like, how are they asking?

Yeah. Or the software can actually explain to them what they've forgotten.

Right. So it can say, okay, based on all of this data, you're probably missing these line items. That's right. Well, that's pretty powerful.

Yeah.

That's cool.

That's cool. We're very excited for what this can do. I mean, another way to say it, if building is complex, if you take any one of your workflows, just make 10 actions from 1 to 10. What AIA is going to do is it's going to scrape up two to eight and do them for you. You're ultimately going to have to determine what your objective is, and you're ultimately going to have to do your QA and assess the outcome. But in the meantime, all of the efficiency that you can get by the computers. We have wonderful customer of ours out of Tennessee. He expresses that he's going to be on stage tomorrow. He's like, this is like having two or three additional employees.

Yeah.

So this is meaningful when you're a small builder. All right. Particularly when you're trying to compete against the big guys and get a voice, get someone to call you back. You know, we've started to really solve those problems.

We were talking earlier about profitability on jobs, and like I mentioned, and one thing we were talking about is if you can improve efficiencies in your building company, even at through the construction process, that essentially reduces your fixed costs and can improve your profitability on every job. Right. And so any small improvement like you're suggesting here can be enormous for builders, especially small custom builders.

Yeah. Remember that 20% I talked to you about? That's generally eaten away and wasted by the end of the project. It's gone right? It's gone right. And it's gone through inefficiencies. You know, one of the things that we really like about our system, when builders come to us, many of them don't know whether they made a profit or not until it gets to march and they go see their accountant.

Well, hopefully they're checking it more regularly.

If they're using BuildXact, they could actually see that in real time. Up in the top right panel is just where are my estimates on this project, what's my statement of values and where are my actuals? And what we're actually seeing is in our project management module, builders are identifying bias. So they habitually underestimate a particular category in a build and they couldn't even see it. But now with this line item accuracy, they go, oh, we keep making that same mistake, project after project, we can actually fix it. I mean, it's just simple color coding. Good decisions, bad decisions based on the information that they have in front of them when they're actually trying to make the decision.

I know you mentioned every customer home's different, but there's going to be similarities between a lot of the ones that a single builder will make. Is there any way to kind of duplicate builds in BuildXact so that it's a really easy process to get starting?

That's one of the foundational benefits of the software is everything can be templated and so you have repetition, you can actually pull these templates and refer back. So for example, with Home Depot, the Home Depot team have built single family residential templates, templates for different types of jobs, but that are just available to you. You download them, look at this, the bill of materials in the assembly and say, oh, I'm going to switch a couple of things out to make it truly mine and I'm done. It's a five minute process rather than four, five hours to try to actually build out that bill of materials.

So when's this AI feature out of a beta? And how, I mean, do all customers have it at the moment or is.

It at the moment it's available to those customers that are both using BuildXact and integrated with Home Depot.

Okay.

And we're slowly, based on that result, we're slowly releasing it into the different markets over the coming weeks.

Sounds exciting. So, final question, what's happening next with BuildXact and what do you think is the next stage for the construction industry when it comes to this planning and estimating and accuracy stage?

So let's bring all this together. Like, if I'm a small business person, I have been one of my time. Every one of us would have experienced that morning or night when you've woken up with cold sweats and you felt, I'm alone here.

Right.

The thing I would want people to take away from this is you're not alone. You're one of the largest channel distributors in this country, one of the best software, global software products available, all on your side and in your team and available to you. What does that mean? If you lean into this, don't be afraid of the technology because it's going really fast. We can see in the very near future, I can be standing on a job site with my mobile phone in my hand and I can verbally give it a prompt and say, I would like to make a change to the location of the two doors in the vanity in the master suite. The software will ingest that verbal prompt, it'll go into that database and it'll pull the assemblies, it'll pull the takeoff data and then it'll reach into the supplier, Home Depot, to update the inventory. It will schedule that change based off of the items in that bill of materials and it'll assign people to the work from a verbal prompt on site. We're not years away from that, we are months away from that. So it's an exciting time. It's an exciting time to be a builder. Goodness knows there's plenty of demand out there. And if we can help builders to really be as productive as the opportunity is available to them, they're going to build more homes. Our communities are going to actually be better served by this entire process. And we're really, just humbly, really pleased to be a part of that conversation and delivering a part of the solution.

Cool. Yeah, I mean, I think it's important. My big takeaway is that there is a lot like, technology's moving fast, but if you adopt it, it can be a competitive advantage. And if you don't adopt it, then you're in a bit of trouble.

I think another way to look at it is this technology could be considered like a full time working unit. This is you talking about resourcing yourself to be able to grow. Now, our experience with builders, and this is a awful generalization, but 24, 25 years old, been working on the hammer for a large production builder. Or maybe I come off a design desk and I want to do design, build, and I say I'm going to do this, and prime thing I want is a couple of projects to win. They start using builders, they want to win a few projects, they manage the projects well, they've got a growth opportunity, so they don't hire people. And then, so 28, 29, all of a sudden, it's changing now I'm managing people, I've got all these resources, get to 32, 33. If they haven't solved that, they're starting to think about going back to work for that production builder again. So in order to stop being in that cycle and to really make a success as a small builder, I think it's really a good idea for you to kind of step back a moment and not be afraid of the technology and say, how can it actually help me not to get to those roadblocks? How can it get me to focus on being a builder and on the quality of my build, rather than managing a HR department or the difficulties that I get of not being able to resource the opportunities I've created for myself?

Yeah, that's a great point. If you've got the right technology and systems in place, you can do everything else better.

Yes. Yeah.

Well, Steve, thanks so much for coming on Professional Builder Secrets. We'll leave the QR code up there for everyone here that wants to scan and check out BuildXact, but it's been really valuable. So thanks for coming on.

Yeah, you're welcome, Will. And if anybody, everybody's on the show wants to see us, we're over in the central hall, co exhibiting with Home Depot. There's some stage presentations coming up. It really is going to innovate in the industry, so we look forward to seeing you over there. Thank you.

We've got Russ on there with you tomorrow on Thursday afternoon, 2:30. Yeah.

Russ is coming to join us. Yeah, perfect. Thank you very much.