Production home builders have tried for the past three years to get ahead of what customers want at a price buyers can afford. Every time they think they nail what's in demand, the economy pushes buyers into something different, at yet a lower price, forcing builders to start anew. Why can't builders build what's in demand today? Borrowing from a recent political campaign, it's the supply chain, stupid!
In good times, builders knew they could sell a house at nearly any price. There was no need for a sophisticated supply chain because material and labor costs didn't matter that much, and the supply chain didn't need to be that agile because the buyers would buy whatever the builders built.
In down years (like now), builders lack or eliminate the resources to transform supply chain departments into huge contributors to the bottom line. Moreover, the supply chain is too often treated as an administrative function that places orders dictated by “others” with preselected “favorite” suppliers.
Gestation periods for new styles, sizes, or value home series are too long for several reasons. The time it takes the supply chain to undo what it has in the pipeline and then refill it with new requirements ranks at the top of the list. Before the economy tanked, the entire supply chain team at a Top 2 home builder was devoted to fixing this, but then the emphasis was on cost.
The same game-changing processes, however, would have also allowed dramatic improvements in product development lead time.
How many production builders can accurately and quickly determine the cost of a new model before committing to build it? How many determine at what price they will be able to sell a home, then predetermine what profit level they need before deciding amenities, style, quality, value level? Most industries can easily do that. Why can't home builders?
It's because other industries use a fully loaded material requirements planning (MRP) system. If home builders had MRP, they could accurately determine new model costs and ensure their necessary profit without months of meetings and dozens of spreadsheets. But implementing an MRP requires resources and time. The data with which to populate it must be accurate up to the minute. What's required? See list at left.
Then there are all the peripheral supply chain processes and programs necessary to optimize the MRP's usefulness and speed to drive costs to a minimum and make a supply chain “world class.”
Has top management assembled the resources and talent, budgeted the money, and begun the arduous process to make this happen before the next down cycle? Does top management believe that a world-class supply chain with the right tools, talent, systems, and support provide a positive impact on their bottom line? You decide.
Other industries have proven the benefit of supply chain as a strategic anchor. For 30 years, I have held leadership supply chain positions for nine Fortune 200 manufacturing and service industries—including home building—where these techniques were successfully utilized. Home building is no different.