Wednesday, July 1, 2015

Andy "Speaks Out" About the June Modular Builder Breakfast

My breakfast meeting presentation in June didn’t go as I planned.  But I’m a modular home builder, so I’m used to that. 

There were so many comments and questions by builders and manufacturers about a variety of industry issues that I was only able to deliver a few of my points.  I promise to take more control of the discussion in October when I will continue to present my ideas.
Over the last two weeks I’ve been able to speak with several builders and manufacturers.  Most everyone wants to know how I propose to implement my ideas.  In fact, there has been more interest in “how” I see the changes happening than about “what” I think needs to change or “why”. 
Before I discuss the “how”, I want to make a couple of points about the “why”.
All the builders and manufacturers I’ve spoken with believe they would be better off if the type of information technology  (IT) I’ve discussed (see MHBA, Blog 1, Blog 2) was used to help them manage their businesses.  But I’m unsure whether everyone appreciates how big an improvement this would be.  Judging by the success enjoyed by many other industries who’ve implemented these types of IT systems, we could expect to see substantial efficiencies and cost savings. 
Start with the fact that our current systems require too many separate yet nearly identical actions by manufacturers and builders.  On the manufacturer’s side, for example, the CAD programs are mostly separate and disconnected from the specification and pricing systems.   An order processing person has to manually enter the data from the engineered plan into the pricing program even though current technology enables a plan’s specifications to automatically be fed into the manufacturer’s pricing program.
On the builder’s side, not only are the modular drawings, specifications, and prices done separately from each other.  So are the contractor drawings, specifications, and prices.  All modular plan details must be manually input into the builder’s modular pricing program and then all contractor plan details must be manually input into the builder’s contractor pricing program.  Not only are these two-step processes for generating the modular and contractor prices unnecessary, all four of these steps could be completed automatically as the modular and contractor plans are drawn.  This is especially true with Building Information Modeling (BIM) software, which incorporates time and cost into a true 3D program. 
These everyday practices by manufactures and builders result in a tremendous waste of effort that compromises three things for all parties:  time, cost, and quality.  Time and cost are obvious.  Quality is compromised in part because mistakes creep in when unnecessary steps are required and data needs to be entered several times by two different companies.  These quality problems in turn add to time and cost.  Our industry’s processes are plagued by these costly inefficiencies that hurt builders, manufacturers, and homebuyers alike. 
Actually I believe they hurt builders substantially more than manufacturers.  Once a sale is made, there are far more moving pieces for a builder to manage than is often acknowledged.  These include planning a delivery and set, ordering permits, arranging for customer financing, completing warranty work, shopping for subcontractors, specifying the scope of work for the button-up, and managing the turnkey schedule. 
Pick any one of these tasks and you can see that much of what’s needed to execute it is the information produced by the plans and specifications.  In fact, all of this information is interconnected because it uses the same facts and figures – modular and contractor plans, specifications, and prices.  For most builders today, however, the necessary details are separately identified, organized, and tracked for each function.  The “tools” most builders use to execute these tasks are paper and pencil, faxes and pdfs, emails and phone calls, and spreadsheets and calculators. 
If currently available technology were used, this builder information would automatically be generated by the drawing and pricing programs and then input into a Customer Relationship Management (CRM) Program.  I want to emphasize that the modular and contractor drawing and pricing systems by themselves will not help builders with all of their unique responsibilities.  The systems need to be integrated with a powerful, full-featured CRM program.  Such a program will provide trackable management of all builder tasks in addition to those involving marketing and sales – from delivery and set through turnkey construction.  The CRM system will organize the information so the builder has it readily available in a useable form. 
My primary point on behalf of modular builders is that helping them with these tasks – by integrating and automating the flow of information – will reduce their costs substantially. The efficiencies fostered by the IT systems will increase productivity, which in turn will reduce the need for sales and administrative help.  This will substantially improve each builder’s profitability.
The automated systems I’m advocating will help builders in another way.  They will enable builders to handle substantial growth with modest increases in overhead.  The higher volume will itself reduce unit costs further because economies of scale will kick in.  This most obviously applies to fixed costs, such as office space and model home centers, since the overhead gets spread out over the increased sales.
Manufacturers will benefit as well if each builder and their manufacturer share these programs so their information systems are integrated.  Certainly it will increase their productivity and reduce their costs.  But this pales in significance compared to what I point out below.
So “how” do we get there?
In my previous posts, I’ve emphasized bringing builders together to implement these changes.  Although several builders have expressed interest, I don’t believe it’s the best solution or the likely one.  I’m finding that most builders value their independence too highly to partner with others.  This is especially true now because many of them are doing better than they’ve done in years.  Why should they make changes now?
I believe the more realistic solution is for individual manufacturers to create the necessary systems and tools.  They are more likely to have the financial resources, and they can create a complete, vertically integrated IT solution.  Builders can only do this if they are also controlling the manufacturing side. 
Some manufacturers are candid that they don’t have the resources at this time to invest in the needed changes.  Others are not convinced the changes will get them a return.  They believe some builders are quite happy doing things as they always have.  Worse yet, many manufacturers understandably fear that builders will use the new IT to help themselves while buying homes from cheaper manufacturers unburdened by the IT investment. 
Fortunately there are manufacturers who realize that nothing will enable them more to recruit and retain builders than systems and tools that help builders manage their businesses more profitably and with fewer headaches.  In fact, this benefit is the most likely reason that manufacturers will ultimately make this investment. 
There’s a third option that I can’t handicap.  I’ve spoken to a few people who know investors interested in entering our industry.  One point of entry is for them to create these systems for builders.  They believe that if the information technology is created, they will be able convince a number of likeminded builders to band together.  This would provide the investors with enough volume to do one of two things:  partner with an existing manufacturer or open factories of their own.  Either way, the resulting builder consolidation and vertical integration would justify the expense needed to complete the IT systems.
In the meantime, I will continue to talk to builders, manufacturers, and investors, and I will continue to build a version of these systems for my own company.  If several builders are willing to take on this challenge and invite me to participate, I will gladly listen.  If an investor wants to bring several of us together, I’m all ears.  And if my manufacturer, Excel Homes, wants any help with the work they’re already doing, I’m ready, willing, and able.
Finally, because I strongly believe that integrated systems and tools will empower both modular builders and manufacturers to build homes faster, with better quality, and for less money, I strongly urge my fellow builders to press their manufacturers to take a leadership role in implementing these changes. 
I hope to see you in October!


Harris - Finish Werks said...

Andy, you are a gifted writer, and an even better visionary for our industry. I've been harping about the lack of technology for over a decade. My pride as an independent, boutique builder is not blind: better is better. I will go to Breakfast in October and shut the hell up!

Myron said...

I am very curious to hear what other builders think about Andy's master plan.

Anonymous said...

Sounds a LOT like what Blu Homes is doing.

tschmader said...

I know Andy personally and worked with Andy for many years as the Sales Manager for one of the companies he did business with. He is very passionate about this industry and is always looking for ways to improve it not only for is on personal business, but for the betterment of the whole industry. If our industry keeps doing what it has always done, it will keep getting what it has always gotten!

Anonymous said...

Until and unless Modular Home builders stop identifying themselves as the red headed step child of the home building business and begin marketing themselves as HOME BUILDERS period then we get what we deserve. Every time we refer to ourselves as equal to or better than the NAHB site builder we fall into the marketing trap.

We build energy efficient value priced products for a home buyer on their lot. The manner of transport and placement of the materials is secondary - the same trades are involved in the process but in our case most of the trades are centralized in one facility.

The materials in each home are the same and in every case the materials must be transported and assembled on site. It is the assembly process that is different.

I agree with Andy that the major home builders in each metro market is probably more efficient at the use of IT and social marketing but factory integration with builders won't solve the problem.

The problem will be solved when a group or association of builders team together to build developments, communities, and/or city centers within a reasonable transport radius or one or several plants. This may be easier in the Northeast or the West Coast but there are too many "PICKUP TRUCK" modular builders satisfied with their current market deliveries.