It’s dawning on more production and custom builders that the problems they’ve been experiencing with rising costs and limited availability of construction labor and materials are not going away, and could become more acute as housing demand continues to pick up.
“Our supply chain is looking for signals on how fast to grow,” said Ken Pinto, vice president of supply chain for Hyphen Solutions, which provides software that connects builders with their suppliers and trades. The problem, he says, is that trade partners “often have bad information.”
During Builder’s Housing Leadership Summit in Arizona last week, Pinto moderated a discussion with three national builders—Jeff Allgood, corporate director of strategic solutions for Taylor Morrison; Chuck Chippero, national director of strategic sourcing for PulteGroup; and Bill Harrill, vice president of national purchasing for Meritage Homes—who offered insights into how their companies are reaching out to trades and manufacturers to meet their production requirements in an increasingly more competitive environment.
The starting point was the panelists’ not-so-shocking revelation that the housing industry’s supply-chain management often leaves something to be desired. “This industry has been woefully inefficient” in coordinating and managing purchasing and construction, said Allgood. To bring a measure of predictability to this process, Taylor Morrison is focusing more on evenflow scheduling and production.
Chippero added that PulteGroup is attempting to help its trades use their people and equipment more effectively by keeping subs in the loop through “capacity demand planning” that revolves around “job readiness,” scheduling and organization.
Meritage expects to deliver 60% of its homes for 2013 in the second half of the year, “so we’re trying to manage what’s causing hiccups in the field,” said Harrill. To that end, Meritage lets its subs know, at least six months in advance, how much work will be coming down the pike. Its land acquisition team also sends out quarterly updates to Meritage’s subs and product suppliers, letting them know where new communities might be springing up, and when.
In late 2012, Harrill asked Meritage’s divisions to identify their top trades. One of his ulterior motives, he explained, was to figure out a smoother way to bid out jobs. “I don’t like bidding just to bid,” Harrill said. But Meritage is situational when it comes to how many subs it uses for each phase of a project. In Phoenix, for example, the builder employs only one framing contractor that currently has 700 homes on its plate; but in that same market Meritage might use as many as three trades for other phases.
Allgood observed that builders are their own worst enemies in the bidding process when their house plans are numerous and complex. “It’s no wonder the trades are having trouble getting back to us,” he quipped. Taylor Morrison limits some of its communities to four house plans with three elevations. But in the West “there are still a lot of one-off” homes, and therefore more bids required, said Allgood.
Pinto steered the discussion to the topic of labor shortages. Harrill was confident that trades who left the industry during the housing recession would eventually return. However, he also thinks that builders need a “change in mindset” about how production and labor are synchronized, with a greater emphasis on backlogging.
Chippero said PulteGroup trains its supply-chain managers to interact “more robustly” with trade partners, to fortify their relationships. But Pulte is also eyeing construction practices that require less labor, such as panelization. (His comments were ironic, given Pulte’s history of experimenting with and then backing away from component manufacturing.)
The panelists were ambivalent about using Building Information Modeling (BIM) as a tool for streamlining the process of designing and building houses, and sharing information with trades and suppliers. Pulte has about 120 BIM plans, but Chippero cautioned that BIM’s “biggest challenges” continue to be options. “And you have to be able to leverage the investment” in the system. Harrill added that if builders don’t have a disciplined house-plan process, “you are going to get lost” using BIM, which is why he said Meritage hasn’t gone that route yet.
The housing industry has never been a pioneer in adopting technological solutions, so don’t expect breakthroughs in supply-chain management, either, the panelists implied. “The technology is already there, but we’re just behind in using it,” said Allgood.
Pinto said he had been hearing from manufacturers in some categories that they are approaching “maximum capacity” at their plants. He wondered how extensively builders and their suppliers engage in what he called “demand planning.” Chippero replied that the information builders provide suppliers and distributors “doesn’t always include the level of detail they need.” Allgood added that when builders are willing to offer more basic data—such as the sizes of houses they are building—then distributors are better able to determine how much inventory to carry to meet production demands.
John Caulfield is senior editor for Builder magazine.