KIMBALL HILL HOMES EXECUTIVES' decision this summer to add three more northern California subdivisions to a pilot program it kicked off last September with Masco Contractor Services was no sure bet. Judging from how things got under way for MCS's litmus test, referred to internally as “One Source,” that placed jobsite management of nine trades—including insulation, drywall, fireplaces, garage doors, windows, and kitchen cabinets—in the hands of a single MCS manager acting as a problem solver to keep the construction process on schedule, problems mounted faster than the problem-solving. Long faces, “I told you so's,” and white knuckles cast shadows of doubt across the early days of the program. But failure wasn't really an option for Daytona Beach, Fla.-based MCS, residential home building's largest turnkey installer.
At stake was not only a compelling new case to bring to many large home builders who remain allergic to its services. The fledgling program's initial hiccups also struck some raw nerves at the highest strategic levels at Masco Corp., MCS's parent company. For the first time and at considerable risk, two Masco product divisions, Merillat cabinets and Milgard windows, have submerged their own well-oiled sales and distribution channels to work with a builder through the parent company's MCS division. And those guys are not known to be a patient bunch.
Masco's ambitious synergy strategy plays on builders' rapidly evolving need for help in managing what, at best, can be described as an intricate logistical challenge and on many days is just painful: their labor and materials supply chain. As Masco widens the array of materials that its own huge labor force installs and services in new homes, the conglomerate is looking to enhance its own value, beyond providing commoditized products, components, and services to a more clearly integral position in builders' operations. Builders' big dilemma is a struggle between capability and control: On the one hand, they need solutions that can make their supply chain more cohesive and manageable to meet their home sales volume goals and projections; on the other, MCS's turnkey product-labor-service solutions cross highly sensitive operational lines, challenging inherent skill sets of most high-volume builders to build hundreds and hundreds of homes from the ground up.
So far, the powers-that-be seems to be satisfied that the pilot is moving in the right direction. “I give Masco an ‘A' for effort,” says Isaac Heimbinder, president of Rolling Meadows, Ill.-based Kimball Hill Homes. Heimbinder's 20-year relationship with the supplier was important in MCS's choice of Kimball Hill as its inaugural partner. “They're putting more energy into this because they are dealing with a builder that wants to cooperate, rather than one that's telling them to get the hell out,” says Heimbinder. Indeed, engendering trust—with the builder's field staff, installers, and product suppliers—may wind up being what this program is ultimately about.
“It all clicks when the [builder's] onsite supervisors see that we're making their jobs easier,” asserts Tom Willett, MCS's corporate quality manager. Nate Moore, MCS's senior project manager, says he thinks the moment of truth arrived when Kimball Hill's supervisors “weren't threatened by us.”
CROSS-PLATFORM PUSH The pilot dovetails with Masco's reorganization of its 67 operating divisions into five “platforms” whose profitability targets and compensation packages have been restructured to encourage more interaction with MCS. “In the past, they were reluctant because it would negatively affect their bottom line,” explains Alan Barry, president of the Taylor, Mich.-based conglomerate. “But now, we're less focused on absolute margin growth and more focused on growing our organic sales and profit by 6 percent to 8 percent annually.” Donnie DeMarie, MCS's president, says his division now actively seeks “cross-platform opportunities.”
MCS wants to reshape perceptions of builders who view its parent company as difficult to do business with and who aren't sold on turnkey installation in general. “More than half of our 75 supervisors have been with us at least 15 years, and Masco is saying it can do better than our guys?” says one incredulous vice president of purchasing for a large West Coast-based builder who requested anonymity, but whose comments echo other builders' reservations, which boil down to who's in charge and whether bundled pricing is a good deal in the long run.
For better or worse, turnkey installation is a fact of life for expansion-minded builders facing an unpredictable labor pool. Since early 2004, Fla.-based Mercedes Homes has used an increasing numbers of turnkey installers because local subcontractors “can't keep up with our demand,” says Mercedes' vice president of purchasing, Craig Schmauss. MCS installs insulation in more than half of Toll Brothers' homes, and Mike Smith, Toll's vice president of purchasing and products standards, sees an industry “leaning toward preferring turnkey, not so much for the up-front savings but for the ‘soft' savings in time, and to cut down on finger pointing if something goes wrong.” Builders regularly demand installed packages from manufacturers in certain categories, including windows, fireplaces, and cabinets. Myriad regional and national companies compete in turnkey, and many are preparing for greater builder demand (see “Outsource Inroads,” page 50).
With 350 branches across the U.S. and Canada and 17,000 installers on its payroll, MCS is the nation's turnkey leader. It installs at least one product in three-fifths of all the homes built in the U.S. annually, and insulation installation accounted for two-thirds of last year's revenue, which in 2005 should close in on $3 billion. But MCS received a rude awakening last year after it surveyed builders and found that its capacity to install up to 24 product categories “didn't, in itself, provide a value proposition for our customers,” DeMarie says. By the same token, builders revealed to MCS that they wanted providers who, in DeMarie's words, could “coordinate the ‘events' in the construction schedule.”