Wednesday, August 12, 2020

9 Key Questions to Ask Before Switching to a New Modular Factory

Some builders will be looking for a new factory this year and the need to making sure the new one is compatible with your business is more important than ever. The day of lowball pricing is finally over. What you need now is stability.

Here are the 9 key questions you need to ask every factory you talk with:

1. What are the payment terms and are they negotiable?

The modular housing industry is unique in how payment for product is made. Cash on delivery, certified check, prepay, assignment of funds and EFT are all common methods. What is not happening is any kind of delayed payment. Don’t be afraid to ask what their terms are.

2. What will my total costs be?

Just because you’ve been a modular home builder for many years with a factory and completely understand how they work does not mean that every factory works the same. I have seen a lot of builders handed invoices after delivery, sometimes adding thousands to the total cost, that they never knew they owed. Talk to the factory’s CFO and nail down final cost and late invoices.

3. How do you work with their Service/Transportation department?

Oh boy, this is one area where the gloves can come off. If the factory delivers a product that has defects or shortages, many factory service managers try to minimize their costs by either dragging their feet or simply denying the chargeback. Why? Because their department is a cost to the factory rather than a profit center. Ask to speak to the service manager and ask the tough questions.

4. Who is the factory selling to in your area?

If you're a builder buying their homes, you want to make sure they don’t  sell it directly to the end user or to a competing builder in your market area. However if your area is Boston, Philadelphia or DC, then you should not expect to be able to handle 4 million people. Or even want to. Expect competition with builders buying from your new factory.

5. What happens if materials don't arrive?

It's inevitable that materials will sometimes arrive late to the production line. But what happens then? You want to find out whether your new factory will hold the modules until the materials arrive and complete them in the yard or will they ship the house to you and then (hopefully) send a service truck to complete the module on site.

6. Under what circumstance might prices change?

You need to be prepared for the factory to spring price increases on you. Ask them what determines a change in price. Is it tied to inflation or an industry index? If prices go up, how much notice will you receive? Conversely, if a supplier's own costs go down, will your price go down, too?

7. Do you have a volume discount or rebate?

Often factories offer incentives. You want to ask about discounts you could be eligible for. If you agree on a certain purchasing goal and reach it, find out if you can receive a discount or a rebate.

8. How many projects do they anticipate putting on the production line?

Until a few years ago this was not a major concern when shopping for a new factory. Today it is critical. If the factory has contracted 300 line moves to projects like multifamily housing, dormitories, etc, that could be half their yearly production and you may not get your home when you thought you would.

9. What is their current backlog?

Some modular home factories don't have a lot of projects but their backlog could be 4 months or more. Many factories that primarily build single family homes are seeing a sharp rise in production as developers have discovered the many benefits of using modular construction for their communities.

1 comment:

Anonymous said...

Great list or questions and comments. Remember the factory is your largest sub-contractor supplier in your process so choose carefully and evaluate their operations and work with other builders within or outside your trade area.