Bankruptcies continue as home builders make extra-ordinary efforts to salvage the smallest profit. Efforts focus on refinancing or selling land and finding capital to build, while sales incentives reach almost comical extremes. Overheads are being slashed and house costs turned inside out. Most have conducted multiple rounds of rebids with suppliers and trades to the point that, as one builder lamented, “We can’t go back to that well … it’s dry.” But is it?
It’s true that the gimme-10 percent-more-or-I-shoot well may be dry. Yet just a little further down, a bit harder to see, and requiring a lot more knowledge to tap is another source overflowing with margin. I am referring to waste in product and process, and it’s so much a part of home building that most don’t even know it’s there.
I can prove this with just one pervasive example among many: wasted trips to the building site. To the builder, these are virtually invisible because suppliers and trades invoice less than 5 percent of the unnecessary trips incurred. How do I know? During the past two years, my associates and I have spent 40 week-long sessions with home builders and their best suppliers and trades in an intense process to ferret out all the waste we can find in product and process. The one item that every builder, no matter how efficient, discovers is unnecessary trips to the site.
These trips result from miscommunication, failure to update schedules, job ready issues, errors on P.O.s, mistakes on option sheets, late change orders—the list goes on and on. Even worse, trades recognize only half of their wasted trips for what they are. For example, ask your closet rod and shelf installer if he measures each unit before installation and for 95 percent of you he will say, “Of course!” Yet I know of five builders where the closet guy, as well as those who install cabinets and countertops and a host of other installers, never have to measure before they come. They also never have to check and see if a job is ready.
This closet installer thinks his extra trip is necessary, and when he is dealing with inaccurate plans or marginal framing, he is correct. What he and the builder don’t understand is that these trips are unnecessary if the right steps are taken to render them so. But the problem persists because suppliers and trades believe they are being team players by not reporting these trips, billing for them, or otherwise acknowledging the waste—waste that they have to build into their bids. Out of more than 800 suppliers and trades we have worked with now, less than 2 percent track even obviously wasted trips by date, lot number, cost, and cause—the simplest of measurements that shine a light on this incredibly costly issue.
How bad is it? Stated conservatively, the average number of unnecessary trips per house is more than 50. To arrive at the true cost, we developed a Trip Cost Calculator. Using an Excel template, suppliers and trades enter factors for preparation, loading, vehicle type, time and mileage to site, resolution time, restocking, management time, and opportunity cost. The cost varies depending on whether it’s an eight-man framing crew that dead-heads or a one-man service call, but the average exceeds $200 per trip. It gets worse. There is nothing in that figure for management and administrative costs to the builder—let alone lost schedule time.
Economists now suggest a sustainable annual production of one million units. At $200 per trip, that’s $10k per unit, totaling $10 billion. All avoidable. You want it? With enough guts and perseverance it can be yours, but heed this warning: You won’t get a dime of it by writing a memo telling everyone to “Get straight and fly right!” This waste is built into our industry’s mode of operation, and ridding your company of it requires monumental process and culture change. It is not easy, but for ten grand a house, I’d consider it. Would you?