6) Evenflow Production
Start a home, finish a home every day.
Hovnanian Enterprises starts and finishes one home every day using evenflow production. Its construction schedule is exactly 57 working days measured from frame to close. And for customers, home sweet home is six months from signing a contract to signing closing documents.
"It's in some ways as if we had the homes on an assembly line moving from station to station except it is the trade partners that move from home to home on a carefully detailed schedule," says Robert Hofmann, corporate vice president of evenflow production for Hovnanian. For the trade partners, that schedule "is predictable, reliable, and consistent," he notes.
"Seven years ago we developed our own scheduling software," Hofmann explains. "We used an early version of the computer tablet in the field and regularly synched it with office computers. We reported construction status daily and did that for four or five years," he says. "We began to see challenges in product variability, accuracy, material arrivals, and shows and no-shows among subcontractors."
|Trade Secrets: Paths to Perfection|
Based on what the company learned and buzz from other builder groups, it developed evenflow in 1999 and rolled out its first evenflow project in the Northeast in March 2000, Hofmann says. The company also implemented just-in-time material delivery. The original construction schedule was 71 days; refinements in the process trimmed it to the current 57, and in one community it's about to drop to 53 days.
Each evenflow team finishes a house every working day, 210 homes a year. Since not all communities are as large as 210 units, a team concentrates on communities that are within a 30-mile radius of one another. In inclement weather, construction shuts down.
Key to evenflow is that all the homes be constructed to the "same template," Hofmann says. That doesn't mean the homes are the same size or the identical plan, but they are on the same schedule: seven days to frame, one day to roof, three days to plumb, two days for HVAC, two days for electrical, seven days to drywall. Similarly, roof trusses arrive on day one, windows and doors day five, stairs day six. One production planner and one procurement coordinator manage the material ordering and delivery needs of between 400 and 600 homes. Superintendents save 30 percent to 40 percent of their time, too, by not running errands, having to scout lost deliveries, or look for missing trades.
Each crew must leave the house broom clean for the next. "Broom cleaning was an area we had to work on," Hofmann says. It quickly caught on. Trade partners learned it was faster and easier to do a high-quality job when the site was clean. And home buyers express satisfaction when inspecting a broom-clean house during walkthroughs.
Success has spurred the company to expand the program both in scope and speed; 40 percent of Hovnanian's Northeast work is now operating under evenflow production. A team in southeastern New Jersey will be doing two houses a day. And best of all is the effect evenflow has had on the bottom line: on-time closings and improving capital flow by 20 percent "because houses get off the books faster," Hofmann says.
Think creatively and be prepared to take on some risk.
After 12 years as a broker for Marsh, a worldwide insurance broker and risk advisor based in New York, Mark Berry knows a bit about what insurance companies are looking for from their builder customers.
"Carriers in this tough market like their insureds to have some skin in the game," says Berry, now vice president of risk management for Atlanta-based Beazer Homes. "They like them to share the risk. If I'm a small guy, I need to show my track record, but I also need to say I'm willing to take some level of retention."
That's the basis of the approach Beazer has put together, combining traditional insurance coverage from its subcontractors with different layers of corporate coverage and self-insurance. It's complicated, to be sure, even for a top 10 public builder such as Beazer, but the tactics the company is using may hold some lessons for other builders facing steep premium increases and coverage exclusions in this difficult insurance market.
First, as hard as it may be when you're staring at a 200 percent increase in general liability insurance premiums, don't take it personally. "In the insurance industry, it is a seller's market right now," Berry says matter-of-factly. "They are dictating the terms." He recommends builders worried about insurance issues instead concentrate on two things they can actually do something about: construction quality and customer service. "There is absolutely no doubt that we as builders every day improve how we build homes," Berry says. "We have to focus on building better homes. We can't just sit back and blame the system ... . We must constantly challenge ourselves to improve our customer service so that if there's a problem, there's a chance to fix it before the homeowner goes to an attorney. That's what is in our control. The insurance issues are not under our control, because the macro-issues are not construction industry-related."
Second, use wrap policies cautiously. When a builder issues a wrap policy on a project, it assumes all the liability on that project, taking it away from the subcontractors who are doing the actual work. In some markets and for some product (e.g., attached housing in Southern California), wraps may be the only insurance tool that will let you get a project done, but they shouldn't be done blindly. "From my perspective, when you're doing a wrap, you're taking on a lot of exposure that's hard to quantify," Berry says. "We're not opposed to assuming risk, but we want to do it smartly." One more note: If you do a wrap, don't forget that subs must subtract the cost of their insurance from their bids--because you're covering that cost through the wrap. If they don't take it out, you're paying more than you should for the job.
Third, consider some level of self-insurance if you can stomach the risk. At Beazer, insurance is reserved for catastrophes, not ordinary losses. Liberty Mutual is the company's primary carrier for general liability insurance, but the insurer essentially only handles claims for Beazer--it doesn't pay them. "It's highly unlikely that Liberty Mutual would ever find itself out of pocket," Berry says, "and that's by design." Should catastrophe strike, and Beazer's losses mount to a certain level, the builder does have a policy with Lloyd's of London. "But I hope I never hit it," he says. Instead, the builder relies on retentions, putting a certain amount of money aside for ordinary claims that insurance would otherwise pay. It's an approach that applies to cost-conscious companies smaller than Beazer. "If you can reasonably predict that your losses will be in the $1 million range, then your insurance company will predict your losses will be $1 million," Berry explains. "But they're not going to charge you $1 million. They're going to charge you $1.3 million."
8) Home Technology
Develop a separate home technology division as a profit center.
Village Homes in Littleton, Colo., caught the technology bug in 1996, the year it began offering structured wiring as standard. The company steadily deepened its commitment. Today it runs a TechTouch division that offers everything from home theaters and distributed audio to security systems, central vacuums, and climate control systems.
Bob Micho, who heads up the division for the move-up home builder, says his group has seen a steady increase in activity since the Sept. 11 attacks. He says home buyers want to stay home and will spend the extra money on a home theater or security system. Here he shares some lessons the TechTouch group has learned over the years for builders looking to start a home technology division at their companies:
* Recruit people with a technical orientation--and train them. Denver had such a strong economy during the tech boom that, at first, recruiting was a challenge. Micho says to look for people who have either worked in PC support or security systems installation, pay them a competitive salary, and give them the training they need to be successful.
* Understand the hidden costs. Micho says at least 90 percent of TechTouch's warranty calls stem from telephone issues. Be sure to factor in enough time to run telephone wire properly, and be prepared to make return trips to troubleshoot problems. Too many trips back to the jobsite and costs will spiral out of control--not to mention the agitation of your customers.
* Train the buyers properly. One way to cut down on return trips to the jobsite is by setting realistic expectations with customers. TechTouch spends about three hours with each buyer in three separate meetings explaining the standard home technology features and finding out what the home buyer really wants to accomplish with his or her new home.
* Target a price point your local market will accept. In the Denver area where Village builds, TechTouch has settled on a price point of $2,000 to $4,000, a fee that typically includes a combination of structured wiring, home theater, central vacs, and an alarm system. The highest sale was about $18,000, and TechTouch has even done some custom jobs in the $100,000 range, but they are rare.
* Don't try to be all things to all people. TechTouch doesn't take on the high-end lighting jobs. Some of the systems can cost between $25,000 and $40,000, so Micho tries not to run up costs. However, TechTouch is starting to take on $1,000 to $1,500 lighting jobs for a night light or a light for a pathway.
* Set up a research and development arm. TechTouch has two people who are constantly researching and testing products with at least two questions in mind: Will our buyers benefit? And are they willing to pay for this?
* Offer flexible financing. TechTouch asks for a deposit, but home buyers can pay by credit card and typically can wrap the home technology package into the mortgage.
* Sell products that produce good margins. Home theater products are so new that manufacturers still have aggressive programs that generate excellent margins. Speaker manufacturers also have some good programs for installers. The idea is to target an acceptable margin level for the style of house the company sells and don't take on the product if you can't make money. Pre-wiring the house for future possibilities also produces good margins.
9) Modular Capability
This manufacturer helps builders integrate modular components into traditionally framed projects.
For large production builders with economies of scale, panels may not save on labor costs. But step down the company-size ladder just a couple of rungs, and a partial conversion to modular components begins to make economic sense.
Apex Homes of Middleburgh, Pa., has cleverly straddled the line between stick building and modular construction. By offering panelized components along with complete modular packages, Apex has opened pathways to a broader spectrum of builders.
"Apex got started by a group of individuals from the manufactured industry who wanted to produce something other than ordinary," recalls Lynne Kuhns, vice president of sales and marketing. "We were looking to create dramatic curb appeal--offering vaulted ceilings, hip roofs, window treatments, panelized projections, and garages.
"We offer 140 standard floor plans," Kuhns adds, "but if we build 700 homes in a year, only 50 or 60 of those will be built from standard models. Because we offer panelization, builders can enhance elevations with steeper roof pitches and additional dormers or make larger rooms."
That flexibility has caught on with many former stick builders, who have begun to add components to their production process. It's not unusual now to see a stick-framed breezeway or front porch attached to a panelized Apex home.
"We have about 220 builders whom we work with currently," notes Kuhns. "Of those, about 170 are active, meaning they bought [components for] at least one house in the past year. About 20 percent of our builders do about 80 percent of our homes, and we ship out to several states."
Kuhns adds that paying shipping costs for modular components often makes sense for mid- and small-sized builders. The price they pay for the materials is fixed (with no surprises for delays, weather, etc.), so the shipping is the only variable on an otherwise rock-solid cost.
Finishing the modular components, of course, still requires labor, but that work is greatly abbreviated.
"Typically you will have the same number of subs on a job," says Kuhns, "but they're not around as long. We have some builders who can actually set and close in 10 days."
10) Trade Partnering
Nothing cements a true trade partnership like ongoing training and discount insurance.
To avoid having electricians, plumbers, and framers bumping heads on the jobsite, Fieldstone Communities makes them put their heads together in early pre-planning sessions. That process irons out a lot of potential wrinkles.
"More than ever before, our subs are dealing directly with homeowners," notes Rick Peters, vice president of construction for Fieldstone, which is based in Newport Beach, Calif. "That makes our relationship with them even more critical. For [new hires] we have a buddy system and a training program that goes all the way through the first year."
But Fieldstone's commitment to trade partnering goes much deeper than pre-job matchmaking and a series of regular meetings among key players. Each month, the company recognizes a "trade contractor of the month." Special events and awards also recognize trade achievement in scheduling, teamwork, and quality.
But those are just the intangible (if essential) aspects of the trade relationship.
"We also involve our subs in a wrap insurance program," notes Peters. "Without it, a number of them wouldn't be in business. Fortunately, we decided about five years ago that the insurance industry was going that way (skyrocketing rates), and we made it a part of our business."
In exchange for the partnering perks, Fieldstone's subs must live up to company standards. They are required to attend safety seminars and follow OSHA guidelines. More recently, the company sponsored a seven-month program based on Stephen Covey's book, 7 Habits of Highly Effective People.
"Our entire field operations team came in and attended a meeting a month," Peters adds. "We share a lot of information with them."
The payback for Fieldstone? Loyal subs who do quality work, and a reputation that reaches all the way to local building inspectors.