Recently, we had the privilege of leading HLS Boot Camp: Operations, one of the four breakout sessions builders could attend at the 2015 Housing Leadership Summit in Turnberry Isle, Florida. For the second consecutive summit, we had attendees in this breakout session participate in the Pipeline game, which is both a simulation of home building production and a business game; played in teams, the Pipeline game is a feature at Pipeline workshops, which teach builders the principles and disciplines of home building production.
Hanley Wood is one of the Pipeline workshop sponsors.
In a full workshop, the Pipeline game reinforces the lecture, business case studies, and team exercises; the game gives attendees the opportunity to see how the visual image, the connection of operating decisions to business outcomes, the systems-thinking, the changes in perspective incorporated into what we call the mental models, and the velocity accelerators unfold and play-out in the production management world that confronts home building.
Contrast a full workshop to the HLS breakout session, where attendees are thrown directly into a production management situation, with little opportunity to develop insight into what the image means, how the connection is made, what the workflow model in home building truly represents, how the thinking and new perspectives work – what it all means and how it all comes together.
Teams are simply shown what the image and connections are, given the game terminology, provided sufficient capacity, adequate inventory, and acceptable margins, and then told that they have to be profitable and have to generate an acceptable rate of economic return (Return on Assets).
In an HLS breakout session, teams are left to their collective instinct and long-accepted and held ways of thinking to make operating decisions that produce those results.
And, here is what happened:
To varying degrees, each team – every team – defaulted to a typical mindset of starting their game with higher-than-necessary levels of inventory, in order to protect their ability to generate closings; as the game progressed, they “pushed” work-in-process into the system, without regard to the rate at which they were completing work.
Each team struggled to operate effectively, in direct proportion to the excessive levels of work-in-process they decided to carry in their production system. They struggled with variation in a production system that should have had sufficient and balanced capacity. The higher the level of work-in-process, the greater the toll variation exacted on the system, and the longer cycle times became.
Some teams never adjusted their tactic, continuing to add work-in-process; other teams seemed to realize that excess inventory was not necessarily their friend, and began to pare back their work-in-process. In the end–-and despite the very brief timeframe for the session – every team seemed to begin to understand some of the key concepts, such as: “more work-in-process = more problems”, and “grow revenue through higher productivity, not through higher inventory and more capacity”.
More-for-Less, not More-for-More.
Going in, every team understood that they were being handed a production system in which there was every expectation they would be able to generate a 3x inventory turn, achieve a 120 day cycle time, produce an 8.3% Net Income Margin, and generate a 25% Return on Assets.
Here is an example, certainly not the worst performance among the teams: instead of a 3x inventory turn, this team managed only a 1.2x turn; cycle time (the reciprocal of inventory turn) was 300 days, instead of the expected 120 days; because they could not produce sufficient closings being burdened with so much inventory, they produced a Net Income Margin of only 2.8%, instead of the projected 8.3%.
As a result, economic return suffered: the 2.8% Return on Sales combined with the 1.2x Asset Turn to produce a Return on Assets of 3.4%, not the expected 25%.
Margin x Velocity.
All of the builders attending this breakout session were initially perplexed; in the end, most were intrigued, some were excited to learn more.
Learn more: www.buildervelocity.com