By Clayton DeKorne. No matter how nicely options boost margins, the process of building them into a home runs counter to the goal of efficient production. Doing anything other than the standard simply slows things down.
"You can't hide the fact that we're production builders," says Michael Brown, John Laing Homes' VP of mortgage and design center operations in Newport Beach, Calif. "Whether we like it or not, in a production environment, we have to abide by the cutoff dates."
To hit those dates and still profit from upgrades, builders are turning to software designed to minimize the problems inherent in managing buyers' selections. (See "Off-the-Shelf Selections.") These programs tackle the process from one of two directions: Buyer applications work at the front end to improve customers' experiences and accumulate accurate selections as easily and as early as possible. The other approach focuses on streamlining the back end, making sure that each option selected is communicated efficiently throughout the company and to outside affiliates. At present, all but the biggest builders (who can develop their own systems) must choose between one approach or the other, deciding which fits better into their operation.
Option One: Buyer-Friendly
John Laing Homes chose the first approach. "We heard the clamor from our clients," says Brown. "Selection is a stressful period for buyers. The cutoff dates put them in a pressure cooker of having to absorb too much information in a very small window of time." Knowing that those cutoff dates were inflexible but eager to lessen the pressure, the company organized focus groups to investigate buyer frustrations.
The builder came away from the focus groups with three goals: 1) make option information available before customers are locked into a contract, giving them ample time to experiment and educate themselves, and post-contract, allow direct access to the information; 2) provide complete information, including not only pricing but specs; and 3) give customers a way to visualize their selections grouped together. Laing opted to use Builderfinish, a Web-based application that takes buyers into a virtual showroom complete with pricing and specifications. Option pricing is automatically tied into the mortgage qualification, so as a buyer considers upgrading laminate to granite countertops, for example, the cost can be aggregated over the term of the mortgage, making the upgrade more palatable to buyers. Once a buyer signs a contract, the options selection process locks down the floor plan, and a clock (literally a meter on the Web page) starts ticking. As cutoff dates approach, the system alerts the buyer. Once the dates are past, the system locks the buyer out of further changes.
By contrast, Choice Homes in Dallas created its own solution, a simple system of file sharing that allows design associates working from the company's design center to lock down options easily and get the data moving toward production as quickly as possible. "Our strength is being able to adapt to local markets, so we wanted a system that can be updated by community managers," explains Chris Velarde, IT director. "A system that requires intervention from a third party would be too cumbersome and limit our ability to react as quickly as the market demands."
Option Two: Back-end Solution
Several off-the-shelf tools promise to help builders manage options selection by prompting sales personnel through the contract-writing process while shunting the selections to scheduling and purchasing. MH2Options and BuildLinks are collaboration tools that generate options tables from the builder's ERP (enterprise resource planning) options catalog, allowing sales personnel to capture buyers' selections, secure a lot, and automatically create a production schedule that contractors and field personnel can access online. Selections can also tie into purchasing and financing programs to generate purchase orders and a billing schedule.
Another product, Sales Simplicity, prompts sales personnel through the options process while they are drawing up a contract. All the selections are put in the contract and sent immediately to financing. Once the contract is approved, the same information goes directly into purchase orders and out to vendors and trades. The software also writes the information to a schedule, where it is available to accounting.
Longford Homes, a builder based in Las Vegas that built 700 homes last year in New Mexico and Nevada, has used Sales Simplicity for four years, linking it with the company's New Star back-end program. While the program is not a buyer application per se, John Murtagh, Longford's president, had it adapted to make information on options available to sales center prospects electronically. Facing a large monitor, prospects can view and click through floor plans, putting on additions and choosing options, complete with prices. A similar interface is available on Longford's Web site (www.longfordhomes.com). Murtagh says that the presentation enhances buyers' awareness of upgrades and gives them a head start on the selection process.
"We set it up so there are very few selections made after the contract," he explains. "We maximize the options up front by allowing the buyers as much time as they want to experiment." Limiting the options after the contract's locked in hasn't hurt options sales either. Murtagh reports that options average $20,000 to $25,000 per home, sometimes amounting to 20 percent of the purchase price.
"The biggest obstacle is change," Murtagh says. "The resistance to change from outside the company was the strongest. All our subcontractor and vendor communications are now handled through e-mails prompted by the system, so we won't hire a sub or work with a vendor if they aren't willing to work this way."
Arvida looked at several off-the-shelf tools but chose a system developed by its IT department to pull option lists and prices from the company's back-end catalog for design associates to use. "Our primary goal was to provide a way to standardize the options and pricing for design associates," explains Richard Rodriguez, vice president of process improvement for the Boca Raton, Fla.-based company. "Prior to creating an all-encompassing system, the same option might be worded differently in accounting or production than it was in sales."
Option Three: Homegrown Integration
The only systems that approach selections from both ends of the process are proprietary ones, such as Shea Homes' E-Vision and Beazer Homes' Online Sales System. These systems aim to do much more than debug the selection of options. Instead, they create an electronic customer profile that tracks the customer from the point of first contact onward.
"We set out to redefine the entire customer experience," explains Shea's Kellie Prince, customer applications manager. Developed with Home2, E-Vision begins with options selection. Prospective customers are free to experiment with a full catalog of options fit into floor plans for each model in a community. They can then save their selections to a shopping-cart-like "scenario."
"We believe in making all prices available to the public, even though our competitors might gain access. It's the only fair way to empower our customers," Prince says. Once prospects settle on a scenario, they can even reserve a lot online with a credit card. At that point, however, they have to schedule an appointment with a sales associate, and from that point forward, access to options data becomes password-protected.
The strength of E-Vision is its integration with a J.D. Edwards back-end system. The combined system makes the entire database of pricing and options available to sales agents, prompts them through the contract, and ties directly to financing. Contract information simultaneously transfers to operations and production teams. Accounting sets up billing while a production schedule is drawn up; purchase orders are automatically filled in and sent to vendors, trades, community managers, and superintendents.
Beazer's system began as a tool for writing contracts and managing sales contacts. Options selection was added as a second phase and, much like Arvida's system, takes descriptions and codes already residing in the back office. Once selection is completed, the information flows to accounting and purchasing, plus into a production schedule available to community managers, superintendents, and subs.
Carla Collinge, Beazer's vice president of operations, says the biggest challenge has been keeping the content up-to-date. "We offer hundreds of options in every community. Each community is different, and options change constantly. New designs, new models, and new materials appear each season and must be converted from manufacturers' formats, none of which are the same."
Collinge argues that bringing options online should start with a system that can feed consistent sales data to production. Providing buyers with easy access should come second, she says. Ultimately, Beazer wants both pieces of an automated system, but it has set a priority on integrating sales data with the back end. "A virtual showroom undoubtedly has advantages," Collinge says, "but we don't expect it will ever be able to completely replace the design center."
Both Beazer and Shea are ahead of the pack in their integration of front- and back-end applications, and it took a lot of work for them to get there. However, even farther ahead would be a more comprehensive approach: a full-fledged customer relations management system. That's where the future in options selection undoubtedly lies.
Clayton DeKorne is based in Brooklyn, N.Y.
Published in BIG BUILDER Magazine, August 2002