It took C.P. Morgan Communities 18 months of research before it chose Charlotte, N.C., as its second home building market. But once it arrived in Charlotte, in January 2005, Morgan was ready to start cranking out houses almost immediately. Its success hinged on exporting battle-tested supply-chain management and scheduling systems from its headquarters in Indianapolis, where Morgan is the No. 1 builder in market share.
Charlotte accounted for 35 percent of Morgan's 3,040 closings in 2005. This year, the company has been building six homes per day in Charlotte and Indianapolis each, about half of what it had been building in Indianapolis before buyer demand faded. That adjustment, says Bob Kehlor, Morgan's executive vice president of housing, demonstrates how flexible Morgan's systems can be in regulating production as sales ebb and flow.
The builder rolled out its supply-chain management program, known internally as “XPer Day,” in 1994 and has refined it three or four times since. Its systems allow Morgan to stay on schedule at each phase of construction by, according to Kehlor, “running our business like a manufacturing plant and optimizing the work flow throughout our operations.” The company decides how many homes will be roughed, trimmed, and so forth each day, “and we subordinate our business to that standard.” Its systems are getting maximum efficiency from suppliers and contractors, based on the percentage of homes Morgan delivers on time (96 percent), variances between materials ordered and what's actually needed (0.025 percent), and “hard cost” impacts, which went down annually for seven consecutive years before 2006.
“There's nothing about Morgan that's comparable to any other builder,” says Phil Barkey, president of Warsaw, Ind.–based LRC Products, which services more than 300 retail lumberyards and has distributed engineered wood products to C.P. Morgan for nearly a decade. “They know what every cost is for every stick of wood they buy. They don't use any turnkey [installation] programs. And they're not lazy.” Barkey adds that Morgan's exacting jobsite procedures force suppliers to become better trade partners. “Our shipping accuracy is 98 percent; Morgan made us get that good. With them, you're not playing defense as much as offense.”
In Charlotte, Morgan's systems had to assimilate certain market quirks. Kehlor notes that foundation details there are different and that municipalities generally require more inspections at each stage, which led Morgan to build three to five days into its framing schedule. Kehlor says his company was warned that trades in Charlotte were less than religious about showing up for work, but that turned out to be fiction because “when they know a job will be ready for them and they know that they are going to be paid the next week, they show up.”
To be on the safe side, though, Morgan took bids from trade partners in Indiana for work in Charlotte and hired 15 of them, including JLF Construction, which has supplied interior trim labor to Morgan for more than 10 years. JLF's owner, Joe Fajfer, says the builder provides all of its vendors with 10-day outlook reports, which let them know what they'll be working on over that time period. “It's very accurate,” he says, and it enables the builder to get accurate bids, which aren't padded with extra time for presumed days lost, from subcontractors. “With Morgan, there's a 99.9 percent chance that the house is going to be ready for us.”
JLF used to work with a dozen builders; now, it works with Morgan and two others and gets 95 percent of its work from Morgan. It does 14 houses per day, on average, and Fajfer credits Morgan's organization, saying, “We'd never be able to do that much volume with another builder.” Kehlor says that using JLF, which was familiar with its construction methods, “gave us significant cost savings over using a local contractor” in Charlotte. Morgan prefers using as few trades as possible and, to control costs, has consolidated vendors—for example, it's gone to three framers in Indiana, from between six and seven. But the builder so far refuses to yield to the “strong momentum” among contractors in Charlotte to bundle trades.