Making transparency work in the LBM industry
What is it to be transparent? It has become the everyday statement, every business, which is done as easily as saying hello or shaking hands. The promise to be transparent has become so overused that it is apparently almost an admission to be less than transparent, or not honest at all. Because if you are doing business honestly, why would you need to express your desire to be transparent? It is a false positive or a false positive. Make your choice. So maybe it should be less about making a transparency statement, and more about explaining the outcome that can happen to the company, partner or customer under a transparent business transaction.
In the lumber and building materials industry, we need to take a better look at how we use transparency for mutual gain and in doing so lessen the bitter connotation it has in the industry. When used in relationships with material suppliers and intermediaries, it causes an immediate negative reaction. In the lumber and building materials industry, the typical use of the word means “you show me your costs, so that I can dictate the margin you make when you sell me”.
Historically, domestic manufacturers have beaten the transparency drum in an attempt to cut costs, a zero-sum game where transparency given by suppliers becomes the stick to knock prices out to the lowest common denominator – “you give me some transparency, I win, you lose â. The point is, not all transparency is the same. It’s like the difference between transparency with a capital T and transparency with a small t. When being transparent gives an unfair advantage or causes an unfair loss, then transparency does not work and may simply not be necessary.
This brings us to the case of âBeneficial Transparencyâ which exists in the form of âWhen we create transparency between ourselves, we have potential gainsâ. An example is a data cooperative where collective data becomes an operational lever and transformational information, but not necessarily to the detriment of suppliers.
Another example is a shared supply and demand plan, where price discovery is informed by the value of product availability over time and not by a lightly traded spot market; supply and demand planning reduces operating costs and increases profits.
Technology, with a capital T, has proven to be an exceptional driver and provider of transparency. The first gains in transparency come from the automation of price discovery. Think of price discovery in real estate (Zillow), stocks (Robinhood) or shoes (Zappos): these companies have used the transparency of accelerated discovery to benefit their platforms. The losers of technological transparency have perpetuated their value on opacity.
Whether you spell transparency with an uppercase or lowercase T, it doesn’t really matter. But making transparency works for you and your business always will.
A real positive in the industry, and a very specific one too, is transparency around deadlines. When you know how long it will take the factory to ship the product to you, you have something to plan that helps you and the factory. This type of transparency benefits both parties. You can negotiate your price outside the delivery time; you can both plan better; and you both can run your business better, because you have transparency on a key variable: “When will this material be available?” It’s different from transparency which focuses on “What’s your cost?” Let’s compare. How can I control your margin? Â»Transparency on deadlines can improve both of our businesses. It allows us both to win and to be successful.
When a unique value is created, it will always remain so. Even the transparency due to the explosion of digital technology does not change the dynamic by which unique value can outlive transparency. Just look at the role of the travel agent. Agents who deliver unique value will benefit. If you want to travel from Seattle to Boston, for example, you check Expedia or airline websites to find your flight and purchase your ticket. But if you want to spend three weeks on an Africa safari, you call a travel agent or travel agent / guide to help coordinate the plans. In this case, technology-driven transparency really changed an industry (Orbitz, Travelocity, and Expedia travel), but where unique value could be found, that travel agent value stuck.
An important reality about transparency in wood and building materials is that it already exists, but is being overlooked. Many companies in the industry are publicly traded and therefore have SEC reporting requirements which by definition are intended to bring transparency to these companies and the ecosystem. A simple review of financial statements and deposits sheds light on the costs and margins of the business.
Faced with the many complexities of business, best practices always point to accountability. And this is the real essence of transparency. Take ownership of the decisions that ensure the viability of a business and the shared success of customers and partners. Transparency is not a mandate; it is a choice and should be an improvement in your strategy and operations.
Matt Meyers is the Founder and CEO of Yesler Market, software developed to eliminate additional transactions and movement of additional materials in the building materials supply chain.