Optimizing the purchasing process

Zach Wojtowicz:

Inconsistent scattered purchasing can complicate your project plans and interrupt your team’s progress. Why settle for the status quo in buying? Welcome to “The Better Way, a podcast by Buildertrend.” I’m your co-host Zach Wojtowicz. And here you’ll learn to simplify and organize the way you run your construction business, and make meaningful changes to achieve your goals. There’s a better way to plan your projects, the Buildertrend way.

Zach Wojtowicz:

Throughout the season my co-host, Brett Jones, and I have highlighted strategies that start projects the right way. On today’s episode, learn how to extract the full value of Buildertrend’s, purchase order system to standardize your buying process, and gain a planning advantage. One more time, welcome to “The Better Way,” episode five. We made it to the end of season five. Welcome back, Brett.

Brett Jones:

Thanks for having me. Uno mas, one more.

Zach Wojtowicz:

Let’s do it. We’ve been covering a lot of important topics on this season, where we went through everything from managing your documents, to how do you get started with selections. How do you build a schedule? What should you do with the project timeline? How do you plan for cost and materials and using the bid process? And we’re going to wrap it all up in a nice little bow, talking about getting the commitment of purchase through Buildertrend’s purchase order system. This is a place that I’ve personally spent a lot of time discussing with our clients, of how to streamline and really manage their purchasing, and get better at the execution of job costing. So, what are the ways that builders are actively managing the purchasing process through Buildertrend, Brett? What do you recommend? Where do we start?

Brett Jones:

Yeah. Purchasing-

Zach Wojtowicz:

Why should you do it?

Brett Jones:

Yeah. It’s really important to get committed up-front from your subs or vendors, whether it’s for material or labor. And then ultimately managing that payment. And then creating guardrails for orders thereafter.

Zach Wojtowicz:

Yeah. It’s a lot to unpack there, as far as how the purchase order system can unlock a lot of the potential of what Buildertrend’s able to do. Let’s start with the commitment up front. What do you mean by that?

Brett Jones:

Well, I think it’s safe to say a lot of builders I work with say, “We don’t use purchase orders”, or “We do business by…”, “We don’t do this, we’re a little bit old school, and we do business by the handshake”. The good handshake, classic, which I think is great. And I’m not saying that you shouldn’t do that, but I’m saying though too, you need specific guardrails in to protect yourself, your company, and your clients.

Brett Jones:

The biggest thing for me is, I’m not trying to get rid of your good relationship with your sub or vendor. I think a good relationship between you and that sub or vendor is basically that you send out a bid, they send their bid back. You approve it. You send out a purchase order. They approve that. They perform the work on time. You pay them on time, and you’re good to go, right? So, no issues on that front. It’s really though circling around documentation and making sure your budgets line up at Buildertrend too.

Zach Wojtowicz:

And it’s protection, for both parties.

Brett Jones:

Absolutely.

Zach Wojtowicz:

This is what we agreed to, this is how the project’s going to get executed. There’s no communication. Handshakes are easy to do. They don’t have a lot of force behind them. And I know we’re being a little tongue-in-cheek when we talk about these things, but it is really common for superintendents to call up the supplier and say, “Hey, I need this.” But that’s how overages happen. These informal old habits of, I just called this person and got what I needed, or something came up on the job site and I don’t have documentation of it. And who really ends up facing the issues is also the customer who, either you’re going to have to eat the cost or it’s going to be shifted to them. And so using a PO system, the way we’ve always kind of spoke to it, right, Brett, is you’re planning your purchasing more, you’re able to be ahead of the system. But you’re also protecting everybody involved.

Brett Jones:

Absolutely.

Zach Wojtowicz:

So what are some of the other things within the PO system that are benefits, that are good for customers to kind of put into their practices?

Brett Jones:

So, you can create a standardization around your payment terms as well. That way you can have that built out in your POs, so your sub or vendor knows what you’re going to pay them, and when you’re going to pay them. Potential to create, or to pre-create purchase orders. I typically see this with our spec builders, that anticipate costs a little bit better than the rest of us. And then tie POs to the schedule. So again, if your schedule item changes, and that schedule item is linked to that PO, that PO’s deadline will change into conjunction with that.

Zach Wojtowicz:

Yeah. That’s a pretty cool feature. If you typically pay your full amount of your PO, you can tie it to the schedule. Or another piece too, is tie the payment to the schedule as well. So, our best users will literally, when the PO gets set up, they set payment conditions saying like, I’m going to pay this on this date. I’m going to pay it on this date. I’m going to pay it on this date. And that can be dynamically tied. So, if you do a deposit, a first inspection, a final completion, you can build kind of an anticipated, almost a projection, of when those payables are going to go out the door. And if you are someone who typically knows what the cost will be like from a production standpoint, you can template all of that, and really get a forecast built before the project even begins.

Zach Wojtowicz:

Which is pretty powerful, and something that will take again a little bit of practice to get your head around and understanding the full functionality. But it is possible. And we do see people do it, pretty often, once they get the full template aspects set up within their account. Now, some of the things I want to touch on as well is, how do subs use the PO system? We’re talking about at it from, I sent the sub, they approve it. But is there anything that they can do, within Buildertrend, when they receive that PO?

Brett Jones:

Yeah, definitely. So we talked about it last time, as far as like bids and purchase orders within Buildertrend is again, they don’t necessarily need to be active within Buildertrend. We just need a valid email address on file. Therefore, we can release a bid or purchase order directly to their email. They can bid on it or sign off on that PO, directly through their email. It’ll retroactively pull back into Buildertrend that point. That’s No. 1. No. 2 is they can request a payment through Buildertrend as well, which is fantastic. So you can pay your subs and vendors through Buildertrend. You can attach invoices. And you can also stay up to date on incoming payments that you’re expecting

Zach Wojtowicz:

Those last few things, it’s worth noting, they do need to be active.

Brett Jones:

Yes.

Zach Wojtowicz:

To be able to do some of the deeper features, correct?

Brett Jones:

Yeah, absolutely. And that’s where, getting your subs and vendors on board is a huge plus. And if you have enough pull with your subs and vendors to easily get them on board, it’s definitely worthwhile entertaining that.

Zach Wojtowicz:

Yeah. And you just think from a value standpoint, your subs may not have an invoicing system, outside of they write it on a napkin or they send it in via email. And these can build some business foundations for them as well. If you’re able to kind of leverage your relationship with them. And I always tell people when you’re onboarding subs, you don’t have to onboard them all tomorrow. Try to do it in cohorts. If you’ve got five subs that you know will be the path of least resistance, start building that culture of we use Buildertrend, our subs use Buildertrend. Even if you’re using 20 different subs on the project, if you can start getting 25% of them logging in and checking, it’s still going to save you time, still going to improve processes. And over time, you’ll start to build these little warriors for you, that’ll start talking to the subs on site saying, “Hey man, why aren’t you using Buildertrend?”

Zach Wojtowicz:

You’d be surprised at how much the subs talk ,and they’ll have their opinions for sure. And you may not get the guy who still uses a flip phone to log into Buildertrend. But over time, you’ll start to see the results flip. And I’ve had the pleasure of talking to builders in on site, on “The Building Code,” or other podcasts about this. And it is an obtainable goal if you actually set out a plan of execution. But, just touching on what Brett said, from, being able to get the invoice tied to the purchase order. Well, now there’s no confusion about, “Why is this invoice over what the PO was for?” You can see the reason. And if you do need to ultimately alter the contract, you’ve got the documentation as to why you should do that.

Brett Jones:

Yep. So all circles back to documentation. And just keep in mind too, that project management software, and technology disrupting the construction industry, isn’t going away. So either subs and vendors get on board now, or they’re going to absolutely be on board five years from now, if they really want to be within the industry still.

Zach Wojtowicz:

That’s a great point. I always make that joke to people as, “Well, yeah, tomorrow, our cell phones just going to not be a part of our lives anymore, the internet. The reality is, it is going to become the standard.” And you see it in all types of sectors. It’s not just construction that is rapidly evolving. You see it in agriculture and these traditional industries, that maybe aren’t as readily adopting these technologies. Your subs they’ll get there. Just sometimes, you’ve got to bring them along, and our best users do things to incentivize subs to try and get them so that they can maximize the most out of the software. I’ve seen people bringing their subs for lunch and get them set up. I’ve seen them do bonuses, tied to technology adoption. I’ve seen them cut them off and say, “I’m not working with you until you do this.” That’s kind of the radical approach.

Zach Wojtowicz:

I prefer the positive reinforcement than the negative reinforcement, but it is possible. And what you get out of it ultimately will be worth it, if you go and set your mind to it. When we are talking about the PO system within Buildertrend as well, I mentioned unexpected costs, things that you can’t anticipate. What are the systems in Buildertrend that can help handle those additional changes, or out of scope processes, that ultimately we know need to be recorded? What’s the best way to handle that.

Brett Jones:

Yeah, absolutely. So, basically when you have that purchase order signed, that is set in stone, based on that sub or vendors agreeing to work with you for that particular price point.

Zach Wojtowicz:

The contract.

Brett Jones:

Exactly. But past that point, if there’s any sort of addendums to that original scope of work, there’s going to be two different paths. The first one is customer variance, which the customer’s obviously incurring. But then there’s also the builder variance, where the builder is incurring that. So, to your point, Zach, is there needs to be documentation around both. So before a sub or vendor does any particular work, say the customer walks in and says, hey, I want five more outlets. Before you go in and install those five more outlets, you need to consult the builder, or the project manager, and say, hey, we need to get this in the form of a customer change order. Or if you mess it up as the builder, you need to document that accordingly as a variance. That’ll then line up appropriately in your budget and you can see, hey, why are we over budget? Or why are we under budget?

Zach Wojtowicz:

Yeah. I think 5% of users use variance POs, in the way that they should. I’m ball-parking there, but it’s something that we talked about previously, the wow moments. It’s another place, where if you really start to leverage and maximize what the system can do, you can start flagging these things as they come up. You’ll start to catch things as they happen, as opposed to at the end of the job you’re asking the question, why didn’t we make more money? And now you’re trying to investigate and figure out. Good planning, good systems, good processes around all aspects of what we’ve covered this season can mitigate a lot of the what happened?

Brett Jones:

I see it with builders all the time. They’ve constantly missed for the last three jobs, and they’re building $5 million homes up in Utah. They’ve missed concrete, something as simple as that. Just because they’re not proactively planning. So, it’s things like this, where you can really get a lot of insight and clarity into your job costing and say, wow, I missed concrete three different times, and that cost me $200,000. That’s where you get better with estimating over time. And then ultimately increase those margins. 1, 2% a year increasing on particular line items, is fantastic.

Zach Wojtowicz:

Brett, one last thing I want to get into, before we wrap up this season, is this idea of managing costs, getting ahead of things. But the actual billing process for those subs. We know that subs are commonly going to send you an invoice. If I’m using the purchase order system in Buildertrend, should my subs not invoice me? How do you see companies handle that relationship of planning for billing, and really being on top of their financial processes?

Brett Jones:

Yeah, definitely. No, this doesn’t change that process at all. They’re still going to invoice you the same way, that’s fine. If they send a via email, fantastic. You can still attach those invoices within Buildertrend for proper documentation, and then ultimately pay against that invoice. The idea behind the purchase orders that you have a set dollar amount that, that sub is supposed to invoice you for once that project is complete. So, if they invoice you for more, it’s a great firewall to have a then conversation and say, “Hey, why are you invoicing me for an additional 10% upon what we agreed for?” And then on top of that, you can adjust it accordingly, based on a customer change order, builder variance, or the sub at the end of the day, unfortunately you can tell them to kick rocks because this isn’t what we agreed upon, and they might to be taking advantage of you. It’s really just setting those firewalls and expectations, to make sure that your budgets are lining up appropriately. And you have a comparison between your estimates, actuals, and then what you’re ultimately actually spending.

Zach Wojtowicz:

Yeah, I think that’s super important, great point. Using the PO system is just an additional guardrail, to make sure that nobody is paying more than they were supposed to. And if you do end up having to pay more, you’ve got a ledger to compare it to. And how much more did I actually pay?

Brett Jones:

For sure. It’s all about forecasting too. To be a great business owner and operator, you need to be able to forecast for what things you’re going to anticipate in the future.

Zach Wojtowicz:

Yeah, totally. I think that that piece of the PO system is, maybe one of the most important aspects of Buildertrend, which is being on top and planning and having a comparison to what the original amount was for. And if you’re not using the purchase order system, what you typically see, is the sub invoices will just continually roll in. And you would have to go manually check, elsewhere, to make sure you’re not overpaying. Whereas if you’re using the PO system, you’re creating a ceiling. This is the maximum I’ll pay until I’m going to have the conversation, once we hit it.

Brett Jones:

Definitely, forget the contractually binding piece of the purchase order. It’s just the more proactive approach to job costing, rather than reactive, when your sub just invoices you periodically for an unknown amount.

Zach Wojtowicz:

Well said. I think that is going to do it for us on The Better Way in season five. As we discussed earlier, we covered a lot on this season. Brett, thank you so much for joining us.

Brett Jones:

Yeah. Really appreciate you having me out, looking forward to being on future seasons.

Zach Wojtowicz:

Yeah, absolutely. If you are new to Buildertrend or you’ve been with us for a while, don’t forget about our wonderful customer success team and our support teams here at Buildertrend. Of course, you have an account manager who can walk you through any of these processes that we covered here on season five. Just reach out, we’ll be there for us. Please check us out on Facebook and other social media channels. And of course, check out our sister podcast, “The Building Code,” where I host with Charley Burtwistle, and we get into more thought leadership with the people around the construction industry. Loved having you all here with us. Check us out on the next season of “The Better Way.” Thanks for listening to “The Better Way.” If you’re a Buildertrend customer, schedule training to learn more. All listeners, be sure to rate, review and subscribe to “The Better Way,” wherever you get your podcast. Also visit Buildertrend.com/podcast to sign up for the email notifications when the next season drops and explore our other podcast, “The Building Code.”