Steve: Welcome to the Tim Faller Show, where production is paramount and we discuss the tools, time and people associated with getting jobs done and making a profit.

Steve: On today’s episode of The Tim Faller Show, we will be talking about the value to purchase orders without a special guest. Ian Schwandt of TDs Custom Construction in Madison, Wisconsin, alongside Tim Fowler. I’m your co-host, Steve Wheeler. Here is the Tim Faller Show.

Tim: Hey everyone, Tim Faller here and welcome to another episode of The Tim Faller Show. So this is actually a topic that was requested by one of our listeners. And so I want to encourage you to continue to send those in. It makes my job a little easier in figuring out what we’re going to talk about each week. And I’d love to hear from you.

Tim: So this is living proof that I actually do lesson. So now keep them coming in. So Tim at remodelers advantage dot com. So purchase orders have been around for a long, long time. And like a lot of the processes, they’re used extensively in commercial construction but are now starting to be in more and more in residential construction in the world that I travel in the circle that I travel in, I keep hearing about purchase orders.

Tim: And so when I first heard about them, which was probably 30 years ago, you know, it just felt like it was too much work. In other words, it felt like it was a lot of paperwork, a lot of writing stuff, a lot of, you know, just that didn’t really need to be done. And so the company that I work for, we actually called our coding of invoices purchase orders.

Tim: So whenever you called in into the lumber yard and ordered a bunch of framing you’d put in the purchase order number would be the job number 380 7-106, which was framing. That’s not a purchase order, folks. And so we’re going to be talking about that. So they seem to be everywhere like I said, a listener requested that we talk about this, so I was able to find a guest who is using them, believes they are useful, effective, helpful for the business.

Tim: And since I don’t know as much as he does about this, I’m going to ask a whole lot of questions. Let’s get going, Steve.

Steve: All right. So today we have Ian. Here’s the Ian Schwandt. He is the production manager for TDS Custom Construction in Madison, Wisconsin. After starting at TD, Yes, as a part time estimated 2020, he moved to full time in 2021 after getting his new home built to the Done for Now stage. Ian moved to the production manager role in 2022 with the focus of developing department wide financial literacy.

Steve: Ian is also a contributing editor and podcast host for Fine Homebuilding Magazine and a frequent contributor to JLC magazine. Welcome to the show, Ian.

Ian: Great to be on guys. Thanks for having me.

Tim: Hey, so before you started talking about TD, Yes, I just got to ask like good enough for now, What does that mean? Does that mean like you don’t have doorknobs but you can at least open the doors or what? What does that mean?

Ian: that’d be a good one. Now, we got a doorknobs, but we don’t have any basement flooring here. Just painted the concrete. Both bedrooms are down there so that makes it a little bit of a challenge. But yeah, I got a shipping notification that our samples for the LDP flooring we’re looking at for the basement will be there on Friday.

Ian: So maybe we’ll will actually move that part of it forward.

Tim: Yeah, I that was really humorous. I know every carpenter out there that’s worked on his own home could identify with that. Common for.

Ian: Sure.

Tim: Because we all experienced that. My house in Maryland didn’t get finished until we got ready to sell it. And then I put doorknobs on all the doors.

Ian: That’s right. Carpenters don’t finish their homes. They either sell them or die.

Tim: Yeah, there we go. So tell us a little bit more about TDRS. Like the volume of work, your production style, who’s on your staff, that sort of stuff.

Ian: Yeah. So we’re a 3 to $5 million mostly remodeling with the occasional high performance new home style company. We self perform demo all the roof and finish carpentry and then a little bit of a different stuff in between depending on the project. We’ve got three lead carpenters and then four support carpenters, a project coordinator, one project manager and then myself.

Ian: And then we have our own design department as well.

Tim: Well, that’s great. So let’s just start from I don’t know what you call at ground level and define a purchase order for for us. So that we know what we’re talking about.

Ian: So the way that we use purchase orders and the way a lot of my peers do is it is a contractual agreement between the general contractor, in this case T. S, and a subcontractor that is specific to a scope of work on a specific project. So. TMF If you’re an electrician and we’re going to do a bathroom remodel together and you’re going to come on board underneath our contract and not have your own contract with a client, So we’ve reached out to you, brought you in, you’ve given us a price and now we’re going to issue you.

Ian: Tim Faller Electrical a purchase order for your work on that project, which then becomes our contract or part of our contract together for that project. And if you’re our ace electrician, which I would assume you would be, you might have five projects that you’re working on with us, right? Tim So you’d, you’d have five different purchase orders that kind of laid out the agreed upon scope based on drawings and other client walkthroughs that you may have done with us.

Tim: So is it for TDs or is it exclusively for sub trade contractors or do you actually use for like large framing orders and large orders as well?

Ian: So one of the things I started doing when I took the department over was to try and bring some of that purchase order control back to the production manager seat. So I want to control my own cost accounting because it’s once you get in the seat and you’re running the financial is behind all of these projects. You start to see that what the bookkeeper or accountant is doing.

Ian: It’s great information, but it’s not the real time accounting project, global accounting, that a production manager or a project manager, depending on the size of the firm, needs to be able to to manage their costs on a on a day to day basis. So we’ll use them for cabinet purchases, trusses, components for projects, big framing orders. One of the things our project coordinator does is he’ll take the plans and specifications and he’ll put together a couple of big material dumps from different suppliers.

Ian: So whenever possible we try and purchase order those individual orders as well. So they’re teed up and ready to go for the lead.

Tim: So again, just kind of exploring this a little bit further. If I’m your lead carpenter, I’ll never be your electrician. But I could be a lead carpenter. But if I if I have to order 25 more two by fours, do I have to have a purchase order to make that happen or can I just order them and then they get into the accounting?

Ian: Yeah, you just order them and they get into the account. What we’re trying to do is simplify some of that. That early stage work, because you might be a lead carpenter for us finishing up one job over here on one side of the town. And then you’ve got to go over and start framing because just got backfilled at a different site across town and we’re trying to take a lot of that work that is naturally being done as part of the pre-construction and estimating process and try and plug that into what we’re doing.

Ian: The field and the purchase orders for those big initial loads of lumber are a good way to do it.

Tim: Okay, so you started talking about this already, but if you would, walk us through the mechanics of this, you’ve already mentioned that the project coordinator will. Right. But so how does that I mean, literally one, two, three, four. However, I’m sure there are four for this to happen.

Ian: So one of the projects we just started is a garage addition, two car garage with a living space above. So that’s a really good example for this, this type of financial mechanism. I produced the estimate for it. That estimate is is pretty bulked out, right? It’s I’m not counting each individual stick. I’ve got some assembly is built so I’m looking at it when I have the estimate or hat on is how many square feet of wall do we have to build lineal feet, whatever the unit is that produces a cost to goods that we use for the estimate.

Ian: But you know, you can just call up the lumber yard and say, I need 7000 linear feet of two by fours when you really mean this many twelves and eights, etc.. So that’s what the project coordinator does, is he turns that information into a real order and background. Material prices were moving faster than you could keep track of them.

Ian: We were taking that order sheet. A lot of times we’d put it together in an Excel file as opposed to a PDF, and we’d send that out to two or three different yards and then each yard would return a specific proposal or cost sheet based on the things that we were asking for them, because I think a lot of lumber yards, if we would just send that set of drawings off, they’re going to do a lot of work we’ve already done.

Ian: They’re going to send things that we don’t want, products that our leads don’t use. They may forget to send something. This way. We’re in a bit more control. And then once we choose who we’re going to purchase it from, they’re all in our system. We issue the purchase orders through builder trend type, the purchaser order up, attach the proposal.

Ian: I can put in individual line items within the purchase order so that it becomes part of my running budget, which is also kept on builder trend. And then where I think the the builder trend model works really well as I can record a purchase order payment that’s made on that as well. So as I’m reviewing receipts, I can look and say, Hey, for that project on Mason Street, we just got the first floor framing drop.

Ian: We’re going to owe the lumber yard that amount of money. I can record that on a purchase on my but real time budget as the bookkeeper accountant is making that payment.

Tim: Okay. And then I assume it gets sent out to the lumber yard or the trade. Somebody signs it and it comes back to you. Is that the way it works?

Ian: So I sign it. I have a program that I use. It’s got my signature on there and a stamp saying approved the date, and then I will send that directly through the system to the contact at the lumber yard that’s listed on builder Trend. And then any time that I want, I can look at it and it’ll be a yellow god if it’s pending and it’s a green dot, if it’s approved, I can go on there, see my salesperson’s signature right on the screen saying that they’ve accepted the purchase order and then it’s up to the lead or the project manager to call that salesperson up and say, we need the first floor load on

Ian: this day at this time.

Tim: So if you would, if you weren’t using Builder Trend though, you would expect to get a copy back that’s signed by who. Sure. On the other end, just so that you have an agreement that this is. So let me just ask this question particularly with trade contractors. Why is this better than getting an agreement from the trade contractor and signing off on their contract with you?

Tim: Why is a purchase order from your end better than that?

Ian: So for my.

Tim: And I’m assuming that.

Ian: I think the big benefit for us of having it in our system is now many different people who are involved in the project from TD’s end have access to that information. Or if it was just an email between myself and an electrician or a plumber, now might be hard to track that down and I might be, you know, away from work, I might be not not be reachable at a time when somebody needs that information.

Ian: So by having it in the system, the designer can be involved in reviewing it and the owner can review it if he’s the one that did the sales for that. But most importantly, the lead carpenter can get to it in the field. So if you’ve got a large firm that maybe has 100 different electricians or plumbers and you don’t get the same one every day, you actually have something that’s been agreed upon by if you’re the lead carpenter, by your boss and if you’re the electrician in the field by their boss, and you can take a look at it and say, Now this is your scope of work here.

Ian: It’s ten outlets and three lights in this room, not three outlets and ten lights like you’re starting a wire up.

Tim: All right. So I know through our conversations before doing this recording that you were that they were already using purchase orders when you got there. But can you give us an idea about why that was initiated? In other words, why would a company want to initiate this process and what experience can we learn from TD’s on this?

Ian: So I think it has a lot to do with that. These companies evolve over time and sometimes they evolve from tradesperson, breaks out, starts a company starts doing work, they’re out in the field, but at some point you start to get detached from the field. So it becomes a kind of a record keeping and contractual piece of making sure that the work in the field is done.

Ian: The way that you’ve sold it, the way that you’ve priced it out, the way that it’s been designed. I view it really as a link between what happens inside the office building and then what happens out in the field. But it’s even more important in length because it links us to our subcontractors and trade partners and vendors as well.

Ian: So it can be hard to manage everybody. They can start to seem like they’re in a silo or their own individual entity, but really when it’s a general contractor type job, everybody is under the general contractor. In this case, it’s, you know, TDs. You can have people acting like they’re a prime contractor and everybody’s just doing whatever they want with with the owner.

Steve: So and so I understand kind of what your this streamlining process, if a scope of work and the contract had a baby, would it be a purchase order?

Ian: That’s a really good way to look at it. Okay.

Steve: Well, yeah, that’s all. Now, now I’m in line and I.

Ian: Guess it’s it’s about communicating the most important parts of that document to the people who really need it. As anybody who’s read through or written contracts know that there is there’s an awful lot of legalese in there that is not going to help the lead carpenter in the field when they’re standing there with that electrician arguing about where something goes or what the real scope of work is, you need easy to access concise information.

Ian: And when you put the purchase order together properly, that document is there to give you that.

Tim: So I think I need to talk to your electrician because it’s, you know, you keep talking about him and problems you’re having. And so maybe maybe there’s some some subconscious things going on now.

Ian: I was in the field for 20 years before I started the production manager role. And you know how carpenters and electricians can get.

Tim: Yes. Yes. So now we’re talking about this in a very positive atmosphere, which is great. Are there any obstacles or challenges or is there anything, again, a company that might be interested in doing this that they should kind of watch for in in either implementing it or even in the process of making it run?

Ian: I would say that the first thing that you have to think about is, is my trade partner pool sophisticated enough in their communication and admin to know what to do with a purchase order. That doesn’t mean that they’re not an outstanding trade partner and do a great job and give you great pricing. But you’ve got to think about, okay, is this contractor who’s giving me a handwritten note with a great price on it, if I send that back to them in an email via a builder trend or another piece of software, is that even going to pop up in front of them?

Ian: Are they ever going to click on it? And oftentimes we’ll have a handful of contractors that never sign there. So it becomes this got to call them up, talk to them, Hey, you’re going to do this job for us, right? Remember I sent you the purchase order? yeah, yeah, yeah. We’re we’re we’ll be there a lot of snow when you need us.

Ian: And then you got to go in there. And a lot of times I will approve the purchase order myself and then send a copy of it in an email directly to the trade partner and say, just to remind you, this is where we’re at for the the Mason Street project. You’re going to do the drywall on it. And I just wanted to send you the the signed proposal.

Ian: So that can be a.

Tim: Quick follow up on that. And and this is kind of off the topic, but I know people ask all the time, have you had a lot of success getting your trades, so to speak, into the 21st century where they’re using builder trend and using these tools? Or is it still a big struggle for you?

Ian: It’s it can be difficult, but I think most of the trade partners that we’re using specifically are realizing that everybody’s using it that’s doing bigger projects. So they’ve got to got to get on the train for it. And now we have a lot of our competitors in Madison that I know are using it because when I first bring it up to somebody, they’ll say, yeah, so and so I think he’s using that too.

Ian: So yeah, if, if you’re using it too, I’ll take a look at it.

Tim: Yeah.

Ian: And we’re, we’re getting more people interacting with us because of that.

Steve: Is that also something that’s listed in your subcontractor agreement as a, you know, process or something in the vetting process when you’re talking to new subs? Is that something that you want to see or a make or break?

Ian: It’s not a make or break, but it is definitely something that we want to see when we’re talking to people. And to me, it’s it’s a good indicator of how good their communication is going to be. So if you’re talking to a couple of young guys and maybe broke away from another company and now they’re going to start their own painting, contractor all pick on painters for a while.

Ian: And you know, if, if they’re the ones sending you good emails, nicely written proposals with, you know, clear communicate into their scope of work, showing you that they understand it to me, they’re much more likely to be ready to be onboarded to some type of project management software like Builder Trend or Procore or any of the other ones that are out there.

Tim: Yeah. So what are let’s kind of I know we’ve kind of hit it as a general topic here, but let’s just go back into what like what you see as the real benefit to doing this. What would a company expect in terms of benefits from it?

Ian: So for me, it’s twofold. From the lead Carpenter perspective, it’s getting that that real information that I know that my my employer and the client have agreed upon. So they know that this is the paint scope. This is how the drywall is going to be finished. It’s right here in the purchase order, because as a lead carpenter, you can look at that document and you know that it’s a lot of people have had a hand on that document and reviewed it process that it’s been agreed upon and produced.

Ian: But then also from the production manager or project manager perspective, it’s really important for that cost accounting piece for me to, you know, six months down the road. It’s, you know, pre-construction delays, you know, might be a long time before that painter shows up on a project. It’s really great for me to be able to look back at that and go, okay, yeah, that’s what we agreed upon and that’s the number.

Ian: And then that gives you something to also follow and track throughout the project. So when you’re doing your cost accounting and you get these four invoices back from your painter, you can look and go, Yep, that’s exactly what we agreed to. There’s this price. This is a partial payment. That’s the amount left that he’s got to bill me.

Ian: All right, everybody’s on the same page. But then same thing. You can look at it and go up. He sent me up for an extra here. This isn’t something that we agreed to. And then you can get on the phone with the the lead carpenter and say, hey, did you did you agree to that? We’re going to make this change from a level four to a full skim coat in that room.

Ian: And yeah, we talked to the client about it and there’s a change order being put together. He just sent you the bill too early. So it’s that that piece that follows all the way through the project financials.

Tim: So when this is maybe a little bit too technical, but when you enter a purchase order like into builder trend in your world might be some other accounting process in the world. Do you put like the painting, like the deposit 3000? The first draw is 2000. The final draw is 1000. Do you put in the separate payment so you can see it like that?

Ian: Absolutely. So Builder Trend gives me an option to record a purchase order payment so I can go on to back on to the purchase order and it has a a section on there for payments. And in there I can record a deposit. It’s become much more frequent that our trade partners are looking for some type of deposit. So I can, I can record that on there as the deposit and it tracks that on on through their progress payments for the whole project.

Ian: But also I can put on there too if if we’re going over Right. So like if you’ve got a concrete contractor and maybe you had to get a pump truck on a day that you didn’t think you were going to have to because of the weather and now you got a 1500 dollar charge on there. You know, I can start I can put that separately so that I can track it so that when I’m looking at the end of the project financials and I’ve long forgotten about that rainy day where we needed a pump truck, I can look back and go, yeah, that’s right.

Ian: There’s another 1500 and we’ve got an overage on an 600 because yeah, we had to have that pump truck there. So yeah, I knew about that. I can’t, I can’t go screaming at anybody about that.

Tim: So in our pre-show communication, you mentioned something about not just the job by job financials, but the overall company financials, the bigger picture. Tell me a little bit more about how purchase orders fit into that.

Ian: So it really just becomes another piece that a bookkeeper can can plan for, right? So if you’re doing a very large project and you’ve got to think about the overall cash flow of the business and you’re working on managing your receivables and payables, you know exactly what those payables are going to look like as the project moves along.

Ian: Because, you know, take painting again, you can have an interior paint scope where maybe you’re your normal basic painters 2500 bucks, $3,000, and but it could be a premium one with high end paint. And now that that thing that you’re used to seeing come through is a $3,000 invoice, could be a $30,000 invoice. So it’s another one of those tracking points that that help to keep the company in good financial health.

Tim: So just tell me and not really true or false, but yes or no, it almost feels like the success of the purchase orders is not really in getting something signed by somebody else. But if the success is mostly in, it’s now entered into your computer process somewhere where everybody can see it and you can predict cash flow. I love that that does that, that seems to be because you can get an agreement signed, Right.

Tim: But it may not get into your system. Is that is that the right way to.

Ian: Look at it? That’s exactly right. It’s all about putting that information in front of a lot of people who have a hand in the success of the company. It’s it’s hard to think through all the way to now who’s all going to use that information. But, you know, despite what a lot of my lead carpenters would think, we’re we’re not sitting in here cranking out paperwork and emails for no reason right now.

Ian: We’d like to think that there’s there’s something behind this. And just for me, being in this role and being in remodelers advantage and the Poseidon Group, the the understand being the multiple layers of accounting within the construction business has just been a really great experience for me and being able to kind of be the one that’s in charge of the project level accounting and getting to understand how that ties in with not just the bookkeeping and and total accounting for the company, but also the overall cash flow and financial health of the business.

Tim: So we’re going to wrap up here this has been absolutely great. Now, I know a whole lot more about purchase orders than I ever knew before, but I know you you in your bio, it mentioned that you are a contributing editor to Fine Homebuilding and podcast. Just tell us a little bit more about that and and what’s the podcast called in case anybody wants to tune in on something other than purchase orders?

Ian: Yeah. So the podcast is the Fine Homebuilding podcast. I’m a guest host on the weekly show, and then I also host the Shorter Pro Talk podcast where I bring different people into the show that are involved in the trade, and it’s a little bit different than what you do here, Tim, where you’re really topic focused like purchase orders or, you know, managing and training.

Ian: And I’m when I host my show, I’m much more focused on like the Who is Tim Feiler, how did he get to where he is? What’s the story?

Tim: Everybody wants to know and.

Steve: That is we need that except the wording.

Tim: The wording is how in the world did he get where he is right?

Ian: So it’s more about telling the story of the individual person within the trade and getting getting people to view the trades as a real career path because you’re you’re hearing about other people’s stories and you can go, man, that’s that’s exactly how I got into the trades or that sounds like my son or daughter. And maybe they should should look at that instead of some other career path.

Ian: And then the the writing for the magazine I was working with Andy Angle. It was a long time editor for Fine Homebuilding and JLC, and I had the opportunity to work side by side with him as a lead carpenter when I lived in New York, and he was such an influence on me. And one day we were sitting around and I can’t remember what I was complaining about, but he looked at me and said, This is really right for the magazine.

Ian: And I thought, Yeah, whatever. And next thing I know, he’s in introducing me to a whole bunch of people and they’re giving me assignments to write about. And I did some work at JLC with Andy Wormer and Clayton de Corn, and all of them had such a hand in helping me take the experience that I’ve had as a tradesperson and put it into writing and speaking so that I can share it with others.

Tim: Yeah, so that sounds a lot like my story. Somebody said, Hey, how’d you like to write for JLC? And I went to like Day in freshman English. You don’t want me to write anything. And they said, No problem. We can handle that. So hey, and this has been absolutely fantastic. I really appreciate your taking a little bit of time out today and doing this.

Tim: And we’ll look forward to catching up with you on some other things. So let’s stay in touch.

Ian: We’ll do.

Steve: Thanks and take care. Well, Tim, I think the first thing I’m reminded of or the first thing I’m going to talk about is getting you on pro talk so that we can find out the Tim Faller origin story. But today is a fantastic episode. So many people that I talked to, people that are going to come into roundtables as owners.

Steve: Yeah, there is talk I want to grow my company and a part of growth is just a increase of sophistication in the business. I think purchase orders are really one of those things that, you know, may seem daunting or, you know, that’s just a bunch of paperwork. It is just a streamline and it is a graduation of sophistication in a business that could just make a huge difference in taking a company to a you know, that quote unquote, next level.

Tim: So I hope everybody heard the lights come on in my world, because I, I have been wondering, like, what’s the difference between just getting somebody to sign like this agreement that says, I’m going to do these things and then a true purchase order system? And I think Ian really, you know, brought it down, homed in the idea that just it now gets into your accounting system as a cost that you’re going to spend.

Tim: You can track against that much more effectively. I love the idea that you can break it out and and he mentioned builder Trend a number of times. I mean, you could do the same thing in almost any accounting system, break it out so that when you pay that deposit, it registers that’s paid the next payment space, that sort of thing.

Tim: And so I love that that continuity from the beginning to the to the end. And so I think that was like a big, big lightbulb for me with the difference between just having somebody sign an agreement and actually doing the project or the the purchase orders. So I think dealing with the challenge of your trades is always going to be a challenge.

Tim: I mean, I everybody knows from the podcast, if you listen, I am not a huge techie guy. I think I would learn builder trend or something if I needed to, you know, for that benefit. I do jump on board with things that I think are really beneficial, but I know it’s tough for people to adopt new technology and I, I really like the fact that Ian didn’t say, no, everybody, everybody is on board and they just say, Wow, what a wonderful thing, because that’s not the real world.

Tim: And so he has workarounds, you know, for the the trades that he wants to use. But they may not be as tech savvy as he would like them to be. And I think it’s a great example of, you know, moving into the 21st or 22nd century, but also being willing to work a little bit in the past just so that, you know, the good people that you have can stay with you.

Steve: Yeah, I really I really love this show for a lot of reasons. It’s, you know, I knew what a purchase order was by definition. I you know, but but how it’s layered into a company and how it’s made effective and makes a company better, I truly didn’t know. And I think Ian really touched on a number of things that gave that detail, why you would use it, how it’s used, how it’s utilized, and how it could be a benefit and all of the things you mentioned as struggles involved.

Steve: So this is it’s one of those five tool full, full bodied shows, you know, where we cover everything.

Tim: The other thing that I thought was was really cool because I have heard of companies that if a if a lead carpenter has to order five two by fours, he has to call the office, get a purchase order, and then, you know, then and it just seemed like that was such a waste. And I like the idea that they they have some leniency in their they have some ability for their team to, you know, get what they need to get the job done and not have to deal with a lot of phone calls back and forth.

Tim: So I really like that. I I’m glad that he said no, they don’t have to get that purchase order because it seems like that’s a lot is more work and wasted time than it’s worth.

Steve: Yeah, well, this has been a fantastic episode. We want to thank Ian Schwandt for joining us today and we want to thank you always for listening to another episode of The Tim Faller Show.

Tim: And remember at the Tim Faller Show, we’re working hard to eliminate. It is what it is from your vocabulary.

Steve: This has been another episode of the Tim Faller show, One to hire Tim and fast track your growth visit remodelers advantage account slash consulting to learn more. And if you’d like more information about roundtables, our World Class Peer Advisory program, please send me an email at Steve Remodelers Advantage Dot com. And of course, don’t forget to subscribe to the show and comment on iTunes.

Steve: Thanks for listening. We’ll see you next week.