The best builders understand the impact that cycle time has on their bottom line. The real opportunity for great builders is to determine the true value to their bottom line, communicate it to vendors, and include this value in their bid process.
An analysis by one builder shows that a decrease of 10 percent in cycle time adds 23 percent to the firm's gross profit. This represents leverage and is a great way to boost income while delivering the same value to consumers. Reductions in cycle time are also free to all of the participants in the supply chain. In fact, working on cycle time with supply chain partners can lead to improved quality and other savings as the team focuses on process rather than initial price and rebates.
As builders look at the supply chain to keep or increase current margins, suppliers of materials and labor need to examine their fit. A myopic look at product and process alone will not suffice. Vendors must look at the builders' total processes to determine if they can make a contribution to reducing the builders' cycle time. While a supplier may be able to reduce their own cycle time, if it does not translate into a total cycle time reduction for a builder, then it is of no value.
Winning reduced cycle time is best done by a joint team. Included should be the builder's purchasing, construction, and marketing teams, plus the vendor's product specialists, supply chain experts, and representatives of the entity supplying labor. Create rules and goals for the project up front. Such rules might include open-book review of present situation, the agreement on sharing the value of the results, commitment from every team member, and confidentiality.
Such teams can also win with other types of projects. One vendor uses its expertise and reliance on Six Sigma processes to work with a customer to reduce inventory in the complete supply chain. Rather than working separately, they work together and share the inventory reduction value based on a predetermined formula.
The best builders and suppliers quickly build teams to reduce cycle time and to share the savings. These are the companies that will jointly win reduced cycle time and the corresponding competitive advantages that come with it.