MCFE Project -BuildingEase

Final ReportMay 23, 2011

Deepa Chaparala

Tara Phillips

Rob Slowik

Samuel Sun

Scope of project Key Findings Summary Supply Chain

◦ What we found◦ Implications

E-commerce analysis ◦ What we Found◦ Implications

Recommendation

Topics

Target Segment: Sub-contractors and General contractors Map out buying process and supply chain—where and how Building Ease business-to-business commerce platform can create value and sustain competitive advantage.

Marketing strategy: Analyze competitors and recommend strategies including features and contents to build customer loyalty and platform stickiness, to safeguard in-platform transactions, and secure revenue model.

Project Scope

Key Findings Summary

Opportunities SOMWBA-owned business and

other alliances Software integration tools Link green and traditional Community building

Barriers Margins squeeze Change buying patterns Technology resistance

Caution Threat to suppliers and

manufacturers Don’t want to become a

supply channel Maintain credibility

Recommendations Regional launch Integration with platforms-

Textura Target influencers and buyers

via specific commerce features Blend education, events, and

promotion Support cash conversion cycle

Scope of project Key Findings Summary Supply Chain

◦ What we found◦ Implications

E-commerce analysis ◦ What we Found◦ Implications

Recommendation

Topics

Supply Chain Overview

Corporate Department

Owner/Developer

Commercial

Broker

Suppliers

Drywall

Real Estate ArchitectsConstruction

Company

Firms

Leasing Company

HVAC

Electric/Plumbing

Construction Management

Design Build

General Contractor

Property Manager

In House Construction Managers

Project Manager

Excavation

Carpentry

Etc

Trade Subs

General Contractor

Commodity

Niche

MFRs

Influencers/Recommenders for BE Transactional Buyers for BE

Deep with very little trust

Bid process and interactions are complicated.

Intense competition

Iterative negotiation until contract is secured.

Very tight margins with order procurement.

Supply Chain Findings-DC

Manufacturer Findings - DC Channel partners and many tiers of distributors

“Go To Market” strategies

Varying “Tax incentives”

Very few competitors

Not in tight relationship

Recognize the influencers

Buying decision makers.

Least interest in point of sale

Supplier Findings - DC

Usual business – 90% vs. 10%

Material ordered -~98% vs. 2-5%

Minimal internet usage.

Old school order placement

Timing is VERY critical.

Varying cost factors.

Feasibility of flat rate or fixed prices.

Margins are very competitive.

Different segments within contractors depending on revenue.◦ Small (0-$40 mil), Medium ($40-$100 mil), Large ($100-$200 mil), Very large

($300-$500 mil).

Only very large contractors are tech savvy. They already have massive systems in place for bidding and sourcing of materials.

Challenges at each level of contractors to adopt ecommerce◦ Margins are thin—GC is doing bidding process squeezing margins◦ Getting smaller contractors to use technology. Most still are using fax machines◦ Focus is on getting the next job—not saving $$ or risk management◦ Green is a point of aggravation—one more liability, one more product to worry

about◦ Hard to reach out to very large contractors (tech savvy).

Contractor Findings TP

Architects Findings TP Strong relationship with Manufacturing Sales reps.

Architects exposed to various manufacturer programs for product info

Product specification combination, architect and in house construction manager role is key however owner decision is final.

Green products may be suggested and then researched to determine use. Also, GCs can be vocal about products and suggest changes.

Challenge-- pricing is not component based, architects need updated cost data, estimator input manually based on RS? Means

Opportunity-integrate pricing and ordering link into design and management systems along with lead times

Real Estate Findings TP

Variety of real estate players—corporate real estate, owner/developer, leasing and property management

Commercial broker can be a powerful influencer in terms of determining the selection of supply chain players

Challenge-delays result in liability exposure for client and cost over runs

Inefficient process and system creates high cost of commercial construction

OPPORTUNITY--Commercial leasing in urban environments-high volume, high profit, high stakes with set process and system

Contractor bids on

opportunity

Contractor not

selected to bid

Prints plansElectronic Plans Sent

GC Wins bid?

GCs open bid

Take OffList of

materials to suppliers

Suppliers submits 30 day

proposal

Sub marks up and sends to

GCs

Sub meets with preferred GCs—help GC win bid

GC submits bid to

owner/investor

Subs go back to suppliers for

bids

Sub resubmits bid

1 more round of bidding to

LOWER COSTS

Project starts in 1 week

Move on to next job lead

No supplies ordered

security and storage

Low cost Selects

“bottom 3” GCs

Insurance, bond

rating, referrals

etc.

Owner qualifies GC

YES

No

Focused on next job lead not savings.

Subcontractor Bid Work Flow – RS, TP

Manufacturers think Architects are the decision makers for product specification selection.

Manufacturers are not interested in point of sale but rather this is useful for supplier/distributor and sub-contractor.

Few niche products have manufacturers involved with SC, but not favorable for online transactional.

Most sub-contractors have a routine orders and do not need to research when placing their orders. Only 2-5% of product may need ~20mins of research on internet.

Pricing can vary for different reasons – depending on the credit of contractor, volume, seasonality etc.

Delivery of the order is TIME critical from contractors point of view.

Buying Behavior Summary - DC

1. Barriers of entry are high in this industry

2. Manufacturers see no incentive to be on this site when they already have their distributors, suppliers and marketing strategy defined.

3. Every layer of supply chain stake holder is seen as important and cannot be by-passed.

4. Too much transparency in this industry is not perceived as acceptable

5. Manufactures' focus on Architects & suppliers focus on contractors. There is a disconnect between manufacturers' and suppliers

Supply Chain Implications DC

6. Neither the manufacturer nor the supplier can guarantee a fixed price unlike commodity items sold on Amazon as it fluctuates with oil and price of steel.

7. Current buying behaviors are a hurdle to adopt the ecommerce system for sub contractors.

8. Given the revenue model of BE, it does not lure contractors/SC either

9. Just in time delivery is needed to assure the customer is satisfied.

Scope of project Key Findings Summary Supply Chain

◦ What we found◦ Implications

E-commerce analysis ◦ What we Found◦ Implications

Recommendation

Topics

e-Commerce Sites Findings

Remove

Success factors:

Maintain & attract web traffic - Attract

Convert traffic to revenue - Capture

Encourage repeating transactions – Lock

Accurate, transparent information flow - Promote

Size of customer base is critical at launch

Slow adoption of online business

Potential conflicts with stakeholders

Positioning relevant to existing players

Secure revenue and loyalty

Challenges for BE

BE’s strengths

Key competitive advantages/differentiator:

Green filter Affiliation with Green Roundtable/NEXUS Green and non-green products on one site

BE has potential for higher position above competitors.

a community builder vs. just on-line dealer

Tactics for BE

Acquire customers

Capture revenue

Lock Users

User Experience

Collaborate with existing

players

Focus

Customer Acquisition

Leverage relationship with GPA and other professional association to influence key players

Promote and build BE brand awareness viaSEO, social media and conventional media campaign, trade show etc.

Lock in manufacturers, architect and contractors at launch time.

Design quick start guide for different user / role /scenarios to guide user through web features.

Offer Mobile client application for usability and increasing visit

Capture revenue

Simple, straightforward online flow

Automation is the key

Product Information should be transparent and accurate

Repeat transactions

Profiling users behaviors

Analysis of history data

Offer incentives

After sale service

Community involvement

Promote loyalty

Information with insights

Price aggregation

Promote for both fast seller and slow sellers

Loyalty comes from community involvement

Required Features Differentiated

• Saved searches and order history• Login User ID/password• Credit check and open account• Delivery options—am, pm, lift gate etc• Split delivery• Order routing and approval • Product comparisons

•Order tracking and updates•Change/Update order delivery times

•BIM integration tools•Green filter•User reviews and feedback•Email blast for supplier quotes•Upload project into site with regional pricing and lead times•Place entire order with delivery targets•Commodity pricing updates•LEED documentation managed•Mobile application•Educational credits•Blogs and guest blogs•News and research•Virtual events•User conferences•User forums•User portals

Commerce Feature Summary

Strategy Recommendation - TP

Focus on community, buildease.com: involves major stakeholders creates virtual eco-system breaking existing

barriers offers a platform where information flows

BE’s platform stickiness come from community values

Transactions/sales are secured as its natural outcome

Collaborate with existing players

Bidding process – SSRevenue - RS BE value proposition is to promote their product, not

competing.

BE should consider design web to web data exchange with supplier’s platform

BE differentiate itself by aggregation, such as bidding

BE should work with distributors and assure their margin, at least initially

Revenue Recommendations - RS

Revenue Model Diversification

Owner/Builder Manufacturer Buyer

Standard •Annual fee for research and news feed

Standard •Free product listing with link for ordering•Pay for advertising

Standard•Annual fee for research and transactions

Premium•Project management and integrated software with portal•Licensing model

Premium•Catalogue management via web portal•Webinar sponsorships and promo packages•Licensing model

Premium•Credit account, order history, member pricing•Licensing model

Supply Chain Recommendations –RS, TP

Working with influencers Working with buyers

•Bring transparency for building owners with costs by integrating with platforms such as Textura

•Provide rating and recommendations for architects/GCs

• Promote new research products •Software integration with architectural tools—pricing, detail and links to purchase

•Upload projects for bidding

•Bringing suppliers on board willing to pay commission as BE could potentially reduce its cash conversion cycle

• Close information gap and give voice to subcontractors-- feedback loop from subcontractor to architect

•Qualified lead generation• Rob – Limiting the number of Suppliers

•Dynamic and flexible material ordering to accommodate JIT and security requirements

•Promotional vehicle for manufacturers to reach influencers

Who to Target◦ Regional rollout, start small and local◦ Lock in high profile projects for beta site-secure participation in product

development◦ Architectural firms with access to information and regional pricing◦ Real estate firm like Boston Properties and Corporate real estate for beta projects◦ Commodity suppliers with easy transaction◦ Custom spec manufacturers as promotional vehicle◦ Government contracts—GSA catalogue

Marketing◦ Tradeshow participation to generate content partners and LOI◦ User conferences and virtual tradeshows◦ Bloggers and free lancer writers 

Launch and Marketing Recommendations -TP

Approach for revenue model - % on each transaction is not promising◦ A minimal monthly or yearly subscription fee and license approach.◦ Tiered subscription depending on the services used on the website.

Influence to bring one of biggest manufacturing sales onboard. ◦ MCFE team members can help arrange this meeting.

BE can take benefits from – Strategic partnership. Here are few Alliance Opportunities

Supply Chain Recommendations –TP SS

Open Issues Build data exchange and link with manufacture existing e-

Commerce Define schema to uniquely identify each product from different

manufactures. Level of information BE shares - Privacy. How to maximize green filter potentials

Focus on community to build influence, and move cautiously into e-commerce with features for critical needs

BackUp

Primary Research - Interviews David Fallon, East coast regional Manager Teknion systems Rob Healy, Eastern National Sales Manager 3-Form  Scott Meyer, Former IT Manager, Druml Group Kelly Wilson, Architect Consultant, Winn Development Jon Thompson, Principal Architect, Thompson Young Group Federico Balestrazzi, General Manager Glass Wall Mark Winslow, Project Operations, Gilbane Construction David F Neila, Planning and Control, Giant Cement Holdings Philip Durman, VP Leasing Boston Properties Bill Creelman, former Purchasing Director A.J. Martini Paul Kirchhoff, Trane Chris – Supplier Chris Jones, Sales Rep, Saint GoBain Thomas Hauserman, sales manager on architectural product, steelcase.com

Appendix

2 kinds of suppliers—niche/specialized or commodity Niche Players

◦ Commerce challenge—direct sale with custom specs makes it difficult to transact online

◦ Lead times vary from 2-15 weeks◦ Target architects to spec product and reach them through

tradeshows, targeted pubs and direct sales (feet on the street)◦ Buying groups are not of interest due to the custom nature of

the product◦ Architect is the influencer with the subcontractor, the purchaser

Commodity product (to come)

Manufacturer Data

◦ Product specification combination owner (ultimate say), architect and in house construction manager role is key (previous experience in maintenance and construction)

◦ Based on products they know or they have a good relationship with the mfr sales rep and whether they get good deals

◦ Green—may be suggested and then researched to determine use◦ Transactions through subcontractors—demand fulfillment and will have

input on suppliers if commodity◦ GCs can be vocal about products and suggest changes◦ Architect introduced to products through lunch and munch programs—

sales reps give product presentation

Architect Data

Challenges◦ Pricing is not component based—component plus labor where variable is

labor—architects need updated cost data◦ Volume-based pricing and preferred suppliers◦ Segmented development and buying

Opportunities◦ Input and update regional competitive price points integrated with Revit

or other BIM tool (used by architects) and NavisWorks used by construction) plus point of purchase link

◦ Eliminate manual input by estimators (based on RS Means catalogue) with automatic updates based on cost trending for commodities

◦ Architectural designers offer first mover advantage and large construction companies are using technology

◦ Focus on GSA products—some manufacturers offer GSA specific product lines, bidding process and purchasing is structured, big business

◦ Growth in component-based design—Refabricating architecture and DRIFT along with trend towards computer-aided manufacturing

◦ Tools used—Revit, NavisWorks, Archioffice, Newforma◦ Resources used-Green Wizard and Arcat

Architect Data

Feature priorities (3 top, 2 mid, 1 ok)◦ View historic pricing information (by product/region/etc) (3)

(directly linked to a specific component and updated regularly.◦ User/peer feedback on product performance, installation tips (3)◦ Upload entire spec and get automatic matches with side by side

comparisons (green ratings) (2)◦ Educational content in one place – case studies, product

reviews) (3) needs to be non-partisan, no sales pitches, compiled by an independent third party testing and documentation group

Architect Data

4 Revenue Tiers◦ 0-$40 mil—the man and the van, still using fax machines,

maybe some entry level software but not expensive◦ $40-$100 mil—make or break point—they can’t expand relying

on man on the van and can’t grow due to lack of processes and internal barriers

◦ $100-$200 mil—rapid growth due to government contract work, labor is easy due to unions—get workers when you need them, marked by high revenue but lower profits—Easy to grow yourself out of business

◦ $300-$500 mil—different breed (perhaps the 2-4% Barbra is talking about) These companies are not necessarily experienced contractors. They have massive systems in place for bidding and sourcing of materials. They are pro technology but difficult to reach

Contractor Data

Contractor Challenges◦ Margin—where does the transaction fee come from◦ Getting smaller contractors to use technology. Most still

are using fax machines◦ Focus is on getting the next job—not saving $$ or risk

management◦ Green is a point of aggravation—one more liability, one

more product to worry about◦ Large contractors $300-$500 tier will use technology but

how to reach them—tradeshows and speaking slots can be a good entry point

Contractor Data

4 types of projects roles◦ Construction manager—subs do most work and purchasing but owner approves

transactions and sees costs◦ Design build – more flexibility—partner with local architect (growing space with

IDP)◦ General Contractor role-manages bids and specs, lump sum budget, GC is the

clearing house for all projects◦ Program managers

Challenges◦ Cost trends◦ JIT delivery due to storage and security concerns◦ Identifying products with longest lead times and understanding manufacturing

capacity◦ Limited volume ordering except for campus projects

Building Ease Barriers◦ Internal Tools used--proprietary software iBidPro—used for bidding, qualifing sub

contractors, cost/budget access

Construction Data

Reviewed Building Ease (BE) documents and data

Conducted Primary Interviews

Engaged in Secondary Research

Summarized individual Findings

Analyzed Data

Finalized Conclusions and Recommendations

Process we used for our work

Commerce Site Findings

General Commerce

Industry Specific

Amazon Grainger•Targets facility and property managers•Commerce model

Alibaba Green Wizard•LEED documentation

Building Green•3rd party news and info

Build Site•Search•Submittals and bid software•Advertising•BIM and Tekla integration

Subcontractors 1. There are usually 21 subcontractors per project

1. Subcontractor solicits an opportunity to bid on a project usually from at least six general contractors (unless a general contractor has already been awarded the project

a. If subcontractor is invited to bid on the project i. An electronic set of plans is emailed to the

subcontractor 1. The subcontractor prints out the plans

1. This required that the subcontractor either:

1. Own a plotter 2. Or use a local printing company

2. The subcontractor then generates a "take-off" a. Which includes

i. Qty and specs for materials ii. Estimated labor and machinery resources needed

3. The subcontractor submits the list of materials to their suppliers for pricing and availability

. The supplier generates a proposal . The proposal is usually valid for 30 days

4. The Subcontractor then marks up the materials and labor and submits a bid to at least six different general contractors

5. The subcontractor then tries to set up meetings with their "preferred" general contractors to help the general contractor win the project. This is usually done by helping the GC identify areas of costs savings or proposals to modify the plans.

Project Bid Work Flow

Contd..

2. The general contractors submit their bids to the property owner or investor.

3. The property owner qualifies the general contractors by looking at their i. Insurance mod rating

ii. Bonding rate iii. Referrals iv. Previous projects, v. Etc……

4. The property owner will usually determine the three bottom general contractors and asked them to "sharpen their pencils " i. The subcontractors go back to their suppliers and ask for better

pricing 5. The subcontractors resubmit their revised bids to the GC's 6. If the GC gets awarded the job, they will go through another round

of subcontractor bidding to find the lowest price 7. If the subcontractor is awarded the job, they will usually start

within 1 week. 8. The subcontractor will not order supplies yet because there is

usually no room on the project for storage and any materials left on the job are likely to be stolen

9. Subcontractors schedules are very dynamic. The general contractor sets the schedule for all subcontractors. This schedule changes rapidly as subcontractors compete for the same working space. The schedule also changes due to weather conditions.

Project Bid Work Flow