Pulte told investors and two newspaper reporters in February about its new Detroit manufacturing facility, but mum is the official word until the second factory opens later this year. By Christina B. Farnsworth
Be afraid. Be very afraid. In an era when large areas of land are becoming more difficult to find and process, and every site-built technique has been scrutinized and tweaked to be more efficient, the last best hope of builders to grow and be more competitive may be producing factory components, such as foundation and wall systems.
Now one of the biggest of the truly big stick builders is delving into factory-built housing, but Pulte isn't ready to talk--yet. Rick Murray, senior research associate with Raymond James and Associates says Pulte is keeping quiet because its first manufacturing facility, though open and functioning, is in the development stage. He refuses to label the factory endeavor as manufactured.
Pulte's reputation is as a stick builder, Murray says. So if the company delivers the same product in appearance but changes materials and methods, the perception will still be stick builder. Murray sees "synergies generated by the manufacturing process in a volume business." And as Builder went to press, Raymond James' recommendation for Pulte stock continued to be "strong buy."
Photo: Tomer Hanuka
Is Pulte ahead of the curve? You bet. Only 5 percent of builders build modular units, and another 12 percent have modulars under consideration. Many have considered modulars but decided against it. But, there is a small but stable market for both modular and panelized/precut housing, says NAHB economist David Seiders. (See Labor Opportunities)
What has Pulte done? According to an article by R.J. King in The Detroit News, Pulte Home Sciences (as its research division established in 1998 is called) opened its first factory in Detroit this year.
Alan Laing, Pulte's vice president of supply chain, told King that Pulte expected to trim $3,000 to $4,000 from the cost of a typical 2,500-square-foot home "by streamlining production of major components and using just-in-time delivery practices." The production methods can "improve energy efficiency by 30 percent, reduce noise, and offer better physical product quality right down to drywall and paint," Laing said.
The Detroit factory is sophisticated and includes "computer-controlled cutting devices to improve quality and reduce mistakes," King reported. According to Laing, the Detroit factory will build 750 foundation walls and floor decks, 450 exterior walls, and 250 steel stud interior walls in 2002.
Pulte spokesperson Valerie Dolenga told Mary Umberger of the Chicago Tribune, "We hope to reduce the actual cycle time of building by 15 days using these components."
Dolenga also told Umberger that the factory-produced concrete foundation walls delivered via semi to the site would speed construction. "What took three days [historically] may now take only five hours" at the building site, Dolenga said.
The advantages of factory-built components have been obvious, although financial and market acceptance has been less so. Some of the advantages include the ability to:
* employ a work force with regular hours indoors in an environmentally controlled setting;
* better monitor and control building materials;
* maintain economies of scale with smaller land parcels (on a large land parcel, subs move from house to house as if they are on an assembly line, an economy lost with a few houses on smaller land parcels);
* have faster cycling with more turns of capital because the faster a house gets built and sold the faster the dollars invested in construction come back to the company.
In Chicago, Las Vegas, and some other markets, J.D. Power already rates Pulte as having the highest customer satisfaction. With its new bid to save time and money while improving quality, Pulte is poised to increase its favorable consumer ratings.