It was a rare, positive, and hopeful hour and 15 minutes in a dark and difficult time for the home building industry. Supply chiefs of three of the biggest single-family home builders in the country gathered in a conference room in Las Vegas and told war stories about how they had successfully unlocked savings from the costs of building homes and promised there was still more efficiency to capture.
And the savings don't necessarily come as a result of hammering suppliers for price reductions, the panelists concurred. Instead, cutting the costs of building a house has more to do with working with building suppliers and forming partnerships to eliminate inefficiencies and create synergies.
"As a requirement for the partnership, everyone has to make money," said James Coffey, who was Pulte Homes vice president of strategic sourcing before he was laid off in an early December staff reduction. "Once the trade partner realizes that the builder isn't trying to sap all the profits out of the deal, suppliers become willing to develop an open-book relationship with the builder." That is key for two reasons, according to Coffey: One, the transparency helps both parties root out waste and improve processes. Two, it makes the trade partner more willing to team-build to create better efficiencies.
In fact, with a slowed market and trade partners more willing to work together to retain a share of a home builder's business, now is the best time to sharpen building processes.
"I would say there are more opportunities in the down market than there are in an up market," said Tony Callahan, Beazer Homes USA's senior vice president of national purchasing, planning, and design. Beazer achieves large savings by simplifying plans and products, according to Callahan. "Less is more," he said.
Callahan, whose responsibilities include home design as well as sourcing and planning, explained that Beazer has successfully and dramatically reduced its number of floor plans from 2,017 to about half that number, and eventually plans to whittle its plan library down to 575.
Having fewer plans allows the company to make those it does offer better, both in function and by value-engineering the materials. "Then we can spend more time doing better plans," he said.
The company has also streamlined by significantly reducing its SKUs, which can save costs–even in a down market. If you buy larger quantities, your discounts can be greater, Callahan said.
Costs savings are also to be had by eliminating jobsite waste. "Builders are paying for this twice: once to buy it and once to get rid of it," Callahan added.
Beazer has also been taking a hard look at labor costs market-to-market. For instance, it looked at the costs of installing the same carpet in multiple markets and found installation costs varying wildly from a low of $7.25 per yard to a high of $13. After renegotiating with contractors, the installation costs were cut by approximately $897 per house.
Callahan also emphasized the importance of team building, both within the company and with trade partners to create cost-saving solutions. "People who help plan the battle don't battle the plan," he said.
Standard Pacific is starting at the bottom of the supply chain to find savings. It is reducing the number of links at the delivery level by grouping deliveries of different materials required at the jobsite, said Pinto. For instance, the company has asked a drywall supplier to deliver electrical fixtures as well.
"The money is in the bottom of the supply chain, not the top," Pinto said.
It took some time to find product suppliers willing to deliver multiple products and to work out the logistics, according to Pinto, but the savings have been considerable. "The most difficult discussions I have had have been internal [within Standard Pacific], not external," he said.
Learn more about markets featured in this article: Orlando, FL.