By Jay Holtzman. What builder doesn't want to sustain a third more closings than its capacity has allowed? Or make customer satisfaction ratings jump 20 percent? Or increase revenues per employee by more than 60 percent in four years? How about achieving all these results at the same time? It's the kind of vision CEOs are known for laying before their division managers. Given the right investment in time, money, attention, and technology, it should be possible to see substantial improvements in productivity. The goal of greater productivity, despite the millions invested, however, has proven stubbornly elusive.
Yet these were the very real gains that resulted through a four-year transformation of Arvida/JMB Partners' Weston project in southeast Florida. It's a transformation that points toward the more subtle art of gaining genuine and lasting productivity improvements. According to Kelly Daniel, director of process control and improvement for Arvida, the challenge of needing to close on 5,000 units during a four year period forced Arvida to focus on new processes which ultimately reduced construction cycle times from 30 days to less than a week and boosted revenues per employee by $700,000 -- from $1.1 million to $1.8 million during the four-year period.
What propelled these results were the fruits of information that emerged from implementing and carefully monitoring a central scheduling system and critical path approach adopted by the company, says Daniels.
"At any given time we had 700 to 800 units under construction. It became apparent that you couldn't manage that many units equally. But you can manage 60 to 80 on any given day, those you're having issues with," he says. "A central scheduling system guides you to those issues. When you veer off your critical path or have a delay, it instantly shows up. It points to where you have a constraint and where you have to zero in."
Getting to where a builder has a centralized scheduling system, critical path methodology, the business information, and perhaps most critically, the people and communications to make it work, is neither fast nor easy. But it may be the only way to go in a business as complex as large-scale production home building.
First you have to standardize processes. "You've got to stabilize the system to the point where you can fine tune it," explains consultant and trainer Ed Caldeira, of Caldeira Quality, in Crofton, Md., and formerly with the NAHB Research Center.
Construction is a series of processes, he says, some of which often go wrong. "That's where you get your punch items," he says, "And many builders are working on the same punch items today as they have been since they started home building. People can get really efficient at solving the same problems every week. But when you look at it that way, it doesn't make a lot of sense," he says.
It makes more sense to eliminate problems at their roots, and as many up front variables as possible, which is what centralized scheduling makes possible, says Mahesh Bhupalam, process improvement specialist and partner in Totally Productive Group Inc., headquartered in Weston, Fla.
"Builders are used to scheduling from the field, the superintendents do it, that's the way it's always been done," he says. Although most builders have implemented scheduling technology and they call the result centralized scheduling, in reality, Bhupalam says, nothing has changed.
"The fundamental concept isn't about technology, it's about the way you schedule your contractors and how you prioritize your schedule. In many companies, the schedule is still dictated by the superintendent who contacts all the subs every day. There is still no central location where someone assures that schedules are made to a certain priority. That basic process has to change," Bhupalam adds.
Another reason to take scheduling out of the field: Superintendents can't solve many of the problems that impact schedules. They aren't involved in deciding what to build or how to build it, what materials to use, or which contractors to hire. "They are thrown in at the last step and told to manage the job," Bhupalam says.
The central office, on the other hand, is in a position to deal with such problems. It can address materials, contractors, and other issues "that require higher level policy shifts," take decisions, and make changes, he explains. No matter how good a superintendent may be at working around such problems, he can't actually solve them.
Although many builders already have formalized processes and the technology and information they need, they have yet to develop the techniques to "attack the bottlenecks," Bhupalam says.
"Builders collect large amounts of data, for example, every day from contract signing to closing, but have no formalized process for solving problems the data may show," he explains. "It may reveal hundreds of problems, but it doesn't point to which one is the most effective."
Mining for Gold
Bhupalam's firm recommends cutting the number of management information reports to three or four, including what he calls a capacity analysis report. This is a tool that assesses the amount of labor and time required to complete each interdependent construction phase, tracks on time performance, and focuses on "predicting what will be delayed next week." Looking forward, management has the chance to tackle problems before they arise. And it helps identify broader systemic issues related to logistics, construction techniques, and subcontractor performance. The resulting insights offer builders a "profound knowledge" that goes well beyond centralized scheduling and ultimately what can separate high performance companies from merely competent builders.
Using tools like the capacity analysis report, Arvida gained control over variables they could -- like crew size -- to achieve "even flow" construction. "Now we can construct a 4,000-square-foot home in the same time it takes to build a 1,500-square-foot home," Daniel says. Just as essential as scheduling technology or management techniques, if not more so, is communication. The inertia of "we've always done it that way" can paralyze a program. For centralized scheduling to deliver consistent improvement, management has to bring everyone into the picture -- both from within the company and outside subcontractors and suppliers. Daniel says a program designed to improve "the handoffs" among internal and external partners, which all employees took, was essential for success.
The focus of the program: "That the customers you serve aren't just the ones buying your product," explains Daniel. "Too often companies are so compartmentalized that the departments lose the ability to function together. It was a matter of getting everybody in a room talking about relationships. That was a very big part of increasing productivity," Daniel adds.
Arvida, of course, is not alone. At Choice Homes, in Arlington, Texas, president and CEO Steven T. Wall credits technology for the productivity gains posted recently. Annual revenues per employee hit $1.25 million in 2002. That averages, "just under 11 homes per year per team member, which includes all employees, so our supers are building a lot more than that," he says.
Five Ways to Improve Productivity
|Creating more construction productivity is tough. Here are five major ways CPA Michael Rollage advises his clients to achieve it:|
|1. Analyze the entire construction process in detail. Analyze the process and look for productivity barriers. Measure key factors and set benchmarks for improvement.|
|2. Do better planning. Better planning mitigates the impact of work changes and helps eliminate the unnecessary waits that erode productivity. Develop a measurement to determine how accurate current planning processes are and create a benchmark for improvement.|
|3. Train your supervisors (and crews). Teach them sound management principles and techniques. Train them to look at the job as a process. Their knowledge and skills can make or break a project.|
|4. Employ new technologies. New technologies, such as scheduling software, can yield an immediate return on investment in increased productivity. Don't try to implement overnight. Take a gradual approach and train employees how to use it.|
|5. Communicate that increasing productivity is everyone's job. No one knows how to do a job better than the person doing it. Enlist everyone in the search for greater productivity. Make sure they know suggestions to improve productivity are welcome. Involve them so they know the goal is making progress, not finding blame.|
One reason the technology works for Choice is that it's rooted in the corporate culture. The company was formed, "in the late 1980s when PCs were just getting started," says Wall. "We began networking our divisions in 1993 and started teaching our people to use e-mail and databases. As a result, we've grown up with people in the organization who know how to use the technology," he says. "When they come to work here, people recognize they will have to embrace the technology and learn how to use it." The company uses scheduling software developed in-house. It has a team dedicated to upgrading that program and another that works on new software tools, he explains. "Keep in mind that we didn't just start using this stuff in the last two or three years. The gains we've gotten are incremental and now we're seeing a lot of benefit from what we did early on," Wall says.
Yet even in a company where technology has been ingrained since the beginning, people are the key. "Having people engaged and enjoying what they do has just as much to do with productivity gains as technology," says Wall.
Wall says he expects the next wave of productivity gains to come from, "integrating subcontractors into your systems in a meaningful way," so they can be utilized most effectively. "The thing about subs is to make sure they have a place to go when they leave a job. The cost goes down significantly when you can do that. It isn't how quickly those people get their jobs done, it is how long that house sits without anything being done on it," Wall explains.
For other builders that have been less pioneering, trying to affect fundamental change throughout an entire home building organization may be daunting. But the rewards can begin to accrue quickly. Once the process is defined, is made more regular, and better communicated, coordination quickly improves and a lot of down time is eliminated. The payback can be enormous, according to Michael P. Rollage, CPA, of McCrory and McDowell LLC, a Pittsburgh-based accounting firm with a specialty in construction productivity.
"Approximately 50 percent of a constructor's day is spent in a non-productive state. But non-productive doesn't mean loafing," Rollage explains. A worker may be non-productive due to late or missing instructions, late or inaccurate information, double handling of materials, waiting for resources -- people, equipment, or materials -- dead time between assignments, punch list work accidents, and substance abuse. Improved scheduling and coordination among trade partners minimizes many of these. And as little as 10 percent improvement in labor productivity can run to six-figure savings on a large project, Rollage adds.
Builders who convert productivity potential into reality share a number of traits. They analyze their processes and use centralized scheduling to control them. "In a large company, that's the only approach," Bhupalam says. They make a high-level management commitment. In fact, it's essential to name one person who reports to the president, to manage the process. "Everyone already has a full-time job and that isn't part of anyone's job," he explains.
And they recognize that human nature tends to assure that change doesn't come easily or overnight.
"Too often change is seen as an indictment of how things were done, particularly when you come into a successful project like Weston," Daniel says. "But that's not the case. Things can always be improved. In a large-scale project, it may be months until you see results. And when they start to come in, it is very tempting to sit back and look at them. To keep the level of discipline, to keep looking for places to improve, that's probably the toughest nut to crack."