Jagoe Homes of Owensboro, Ky., was three for three last year in hitting its strategic targets. It made money despite home sales being off by at least 40 percent in its six markets in Kentucky and Indiana. It grew by expanding into Bowling Green, Ky., and by taking over the market position of a custom builder in its home base who retired. And the builder lowered its debt.
Last year had some bumps, too: Jagoe’s closings dropped off to 199 homes, from 226 in 2007 and 300 in 2005. For the first time the builder trimmed its staff, to 39 people from 62. But Jagoe Homes is weathering the recessionary storm better than most builders. “We knew we were going to have to reduce our size, but it went beyond cutting people,” says co-owner Scott Jagoe. “We had to formulate our plans around our strategy.”
Scott and brother Bill have long been committed to making their company an efficient operator. A process mapping software program called Dynami they’ve been using for 10 years helps streamline workflow by identifying non–value-added activities in construction, sales, and management. And a meeting last May that Jagoe’s associates had with subcontractors and suppliers produced a laundry list of lean initiatives whose implementation is shaving significant dollars off of the builder’s costs.
“As my brother says, never waste a crisis, and that’s what we’ve been in,” says Scott.
Closing the Loop
To describe how things are different at his company, Bill remembers back to the late 1980s, when Jagoe Homes’ superintendents would often ignore construction schedules in favor of their to-do lists. Dynami changed all that. It produced a workflow component, updated daily, which “put the whole company in a kind of fishbowl. If I see something in the field I don’t like, I can post it to the project manager and track how he handles it. Dynami closes the management loop.” The software also singled out 156 time-wasting activities, such as redundant checking of tasks. “When you go to Wal-Mart and have something rung up, they don’t get the sales manager. But our sales managers were signing off on every contract,” says Bill.
Jagoe Homes felt comfortable enough with its workflow improvements that it eliminated its vice president of construction position. The brothers admit it took some coaxing to get their sales team to believe that a computer program could track the process of selling a house given such variables as the relative sophistication of different buyers. Tracking production, on the other hand, was a piece of cake and is embraced by Jagoe’s supers and crews who now know what work lies ahead of them and aren’t constantly in catch-up mode. “It gave them back their Saturdays,” says Scott.
The foundation that Dynami laid allowed Jagoe Homes to look for ways to trim its sails when business conditions faltered. Last May, it hired the consulting firm TrueNorth, which specializes in helping builders get leaner without beating their trade partners into submission. TrueNorth conducted a Lean Builder Blitz, which included 28 of Jagoe Homes’ trades and suppliers and a dozen associates—including Bill and Scott—who now constitute the company’s “lean team.” That meeting gener-ated 206 lean initiatives for eliminating waste and getting rid of those things “customers won’t pay for,” says Scott. (See “Step by Step,” right.)
For example, a trash hauler who picks up refuse at Jagoe’s jobsites told the builder his job was taking longer than it should because subs parked their trucks in front of the dumpsters. Clearing those areas saves the collector time, which in turn saves Jagoe $7,000 per year. A drywall hanger told the builder it was ordering too many 12-foot boards, which he often cut, dumping the excess. By buying more 8-foot boards, Jagoe saves $70,000 per year.
The blitz resolved problems between trades without increasing cycle times or diluting quality. It also helped reduce Jagoe Homes’ cost-site variances to one-hundredth of 1 percent. “We’re as tight as we can be right now,” says Bill. The brothers estimate that by executing these lean initiatives, Jagoe Homes has cut construction costs by $3,600 per house.
Forming a Lean Council
Jagoe Homes is on track to close 232 homes this year. But Bill and Scott say their company has only scratched the surface to become a truly lean operation. “I read somewhere it takes 10 years,” says Bill.
Jagoe Homes’ plans for 2009 revolve around sustaining this forward movement. The company will hold a re-blitz for subs and suppliers that didn’t attend the first one and a separate blitz for employees. Sometime this year, Jagoe Homes will form a trade council, comprised of associates, suppliers, and contractors, that will work on its own to monitor the builder with an eye toward smoking out waste, streamlining its operations, and lowering costs.
The brothers would like nothing better than for Jagoe Homes to become more like Toyota, which Bill says evaluates 1 million lean initiatives every year from its employees and trade partners. “Lean comes from the people,” says Scott.