When Fieldstone Homes opened shop in Salt Lake City, Utah, in 1998, history was not on its side. As if stricken by some mysterious ailment, a variety of other public builders had folded their tents and left town. Division manager Bern Wilson quickly discovered why. The average income of the target buyer was modest, land acquisition costs were high, and keeping construction processes efficient and cycle times down proved particularly challenging with area work crews. In the end, the market simply seemed to favor small local builders.
It was clear that the standard business model for the Newport Beach, Calif.-based builder would have to be abandoned for a radically different strategy. The stakes were no less than survival. So Fieldstone began to recast how it did business from the ground up.
"If we hadn't done this, we would have been gone," Wilson says. "No question."
The first change was in the company's operating structure. Originally, Fieldstone used a project-management-based system with "big brain" generalists at the helm. The company opted instead to put experts in key functional areas -- land acquisition, operations, construction, and sales and marketing -- effectively reducing the project's overhead.
Turning to the true needs of the market, a thorough study of buyer demographics led the builder to an inescapable conclusion: Their buyers had big families and they needed big houses. They also needed to keep costs down, but didn't want their house to be a clone of the house on either side of them.
Fieldstone went to work developing a solution. "We're selling a 3,500-square-foot house for $185,000," says Frank S. Foster, president and CEO of Fieldstone Communities, parent company to Fieldstone Homes. "That's a big house."
To make that happen, Fieldstone needed to know the cost of every component of the house and drive out inefficiency. They also needed ways to offer a wide array of choice and convince buyers that a big house at a small cost didn't mean a cheap product.
The Right Choices
A major task early on was finding the right subcontractors. To emphasize the strength of the relationship they wanted, Fieldstone changed the title of its subs to trade partners. They ditched the traditional bidding process and sought out companies that could empathize with what Fieldstone was trying to do. "They were usually guys who were pretty hungry, who were interested in low margin but high volume," Wilson says.
The supplier relationship works the same way. They are guaranteed a consistent volume, and they get a check every week. Prices often are pre-negotiated based on the year's volume. One supplier disclosed its cost and struck a deal for a fixed profit margin.
"My end of the bargain is I have no reason to bid them against other people," Wilson says. "I'm happy with them making 6 percent. It saves me time and I know exactly where I stand on cost."
While some volume builders require their divisions to use centralized purchasing, Fieldstone's Utah division was given free rein to purchase from anyone they wanted to use.
"It was absolutely the right thing to do," Wilson says. "We picked companies with a strong presence in our market. Owens-Corning brings a roofing shingle product designed for the wind and snow conditions of this market. We want the brand association with our marketing. When we put a product on market that's such a good value, people think we must use cheap products. We show them we use Kohler and Owens-Corning."
Fieldstone also looked for ways to slash cycle time. The current schedule is eight days for foundation and 38 days for framing, down from 78 days. Fieldstone's contribution to the process included the design of a very efficient product and centralized scheduling. The trade partners adapted their processes to meet the schedule; a trim carpenter cut a two and a half day schedule to a single day.
Since buyers are assured their new homes will be free of defects, field construction managers perform eight checks on the house during construction. Their bonuses are affected if a warranty item shows up within six weeks after delivery.
To further drive cost out of the house, the company has promoted a philosophy that savings of $50 and even $25 are important, and everyone in the company looks for ways to cut costs. Plus, Wilson says, they've had to change their thought about what should be standard in a house. Their base-level master bathroom comes with a single sink, something that other builders said buyers would reject. Their garages are narrow; the buyers don't care.
"A lot of our buyers have come out of apartments," he says. "They're just happy to have a garage."
With that mindset, it might seem to follow that Fieldstone is offering just a few floor plans, creating efficiency by building them over and over. But Foster says their market research showed they needed to offer choices to reach as broad a group as they wanted.
To get the most floor area relative to the walls, the design is big and square. "It's not rocket science," Wilson says. That also allows great flexibility to move kitchens, family areas, and nooks on the main floor. Fieldstone's trade partners created a process to deliver a country kitchen, a galley kitchen, or one with an island at the same cost. Rooms can be separated by full walls, arches, or half walls. Upstairs, the secondary bedrooms have modular walk-in closet space to become bathrooms.
The major challenges have included setting up the centralized scheduling system, Foster says. With the number of choices in elevations and room configurations, getting the right components to the right house on the right day was a nightmare at first.
"It took a while until we got our software programs linked properly with purchasing and the Homefitting Centers," Foster says. "Once we got all the processes put in place and got that flowing, it went pretty well."
What's been the pay-off? Fieldstone is the fifth largest builder in the state now and working toward a goal of building three houses a day.
"It made us profitable in this marketplace, which was not the case previously," Wilson says. "We've got ourselves where we could handle twice the volume we have now. When we deliver the land to the operations group, we'll be very profitable."
Learn more about markets featured in this article: Salt Lake City, UT.