“Our production system is a ‘pull’ system, but that wasn’t always the case”, the CEO said.  “The current system – which is new – replaced a ‘push’ system.  Like the current system, the old system had a start matrix, too, but it controlled both the rate and order of starts in a community.

“The starts slotted into the start matrix were regarded as untouchable – once they were scheduled, starts were not supposed to be missed under any circumstance.

©Mark Eaton, Dreamstime.com

“It was noted that the entire building process is protected by a buffer of available starts, which protects the start matrix from fluctuation in sales with an ‘inventory’ of starts.  That’s what we call the start buffer, and it actually sits in front of the start-to-completion process.

“Every other homebuilder proudly calls this their ‘sales backlog’, as if having a six-month backlog of contracts that they can’t start is something they actually want.  Under the old system, we looked at the backlog that way, too – the longer the backlog, the better.  We would sell a house in April, with no intention of starting it until October.  Now, we take a different approach.

“If our controls will allow the start, we certainly don’t want to miss it, but – over time – we concluded that a start buffer with a 60-day backlog provides sufficient protection for the start matrix, and corresponds to the current length of the contract-to-start process.  Any lengthier backlog – a start buffer that’s any larger – is muda; too much to manage, too much that can change.  Our homebuyers hate the wait, and it really is counter-productive.

“Under our old system, the matrix did a good job of producing starts at an even rate, and gave needed order to what was previously a totally chaotic process, but pushing starts into the system without regard to the throughput – the rate of closings – resulted in higher levels of work-in-process.  Absent any increase in either productivity or production capacity, RB Builders’ cycle times would lengthen, to the point of sometimes reducing the rate of closings.”

The intrepid, results-based consultant picked up where the CEO left off.

“That’s a good explanation”, she said.  “For most of us, once we’ve had a chance to think about it, ‘pull’ makes immediate sense, because it is linked to the demand that justifies the production.  But, the issue of capacity – whether it should be balanced or unbalanced – is less intuitive.

“It is a paradox.  It is a paradox that a production system with balanced capacity cannot achieve an even rate of production.  The term ‘balanced capacity’ means a production system that has its capacity distributed evenly throughout the system”, she explained.  “It means a production system designed with the same capacity at every resource.

“A production system with the same production capacity at every resource – in other words, a system that purposely levels its capacity across all of its resources – cannot have even-flow production.  Intuitively, we believe the opposite, that a ‘balanced’ system – one in which resources have the same capacity – produces balanced results.  However, in a production system with balanced capacity, variation and uncertainty anywhere in the system will affect production everywhere in the system, making it impossible to control or predict.

“Moreover, production systems with balanced capacity tend to be very rigid and difficult to manage.  They are not the adaptable, agile, easily-managed system we want RB Builders’ production system to be.

“Even-flow production – which we want – is an outcome, not a mechanism.  In order to have an even rate of production, we have to purposely unbalance the system that produces it, and create production ‘pull’ instead of production ‘push’.  We have to live with some amount of excess or reserve capacity on the non-constraint, on the non-pacemaker resources.”

“Doesn’t this fly in the face of Lean and TPS?”, asked the VP of Construction.  “If we want to embrace Lean Homebuilding, don’t we have to do heijunka – don’t we have to do production leveling?”

“In a controlled manufacturing environment with continuous flow, production leveling works”, said the intrepid, results-based consultant.  “The plant can move equipment, cross-train workers to do other workers’ jobs, shift production cells, change product mixes, adjust production runs, etc.  Problems can be solved much more rapidly in that environment.

“However, in an environment like homebuilding, heijunka is exponentially more difficult to achieve.  Homebuilding is not a controlled manufacturing environment.  It is the equivalent of building cars in people’s driveways.  Instead of teammates, we have trade partners that are independent sub-contractors and suppliers, who also work for our competition.  We deliver materials to hundreds of jobsites.  The more inherent variation and uncertainty is to a process, the more difficult it becomes to level production.

“Moreover, homebuilding is not the continuous, single-piece flow process that Lean prefers.  It is a build-to-order process”, she said, motioning for the SR Chorus to keep their seats.  “Lean gives you its first clue about the feasibility of production leveling in a build-to-order process, by recommending that the most constrained resource – the bottleneck – become the pacemaker.  If the capacity and production rate of every resource is leveled to the capacity and production rate of the constraint, then, theoretically, there is no constraint.  And – theoretically – you would have unlimited capacity.

“Yet, we know systems do not have unlimited capacity.  There is always a constraint.  There is always a weakest link in the chain.  We are far better served purposefully placing the constraint and subordinating everything else to it, than we are fighting for a system with balanced capacity.”

 

(excerpted from The Pipeline: A Picture of Homebuilding Production, Second Edition©,  published in Escape from Averageness® in March 2012 under the title Lean Homebuilding:  “Even-flow is an outcome, not a mechanism.”)

 

Be the first to comment
      

Part II: Lean Homebuilding: Where does Lean fit?

Posted October 28, 2018 By Fletcher Groves

“I’ll admit, at first, I didn’t understand it”, said the CEO.  “Or, at least, I didn’t fully appreciate it.  I had a hard time accepting the proposition that all the methods of Lean Production – in particular, the methods dealing with scheduling and flow – didn’t automatically translate into something we could use.  After all, if Toyota could do it, why couldn’t we?

©Mark Eaton, Dreamstime.com

“What I have since come to understand is this:  Our production system is a blend of methodologies, but, it is also – by design and by necessity – a unique, proprietary expression of how RB Builders plans and manages production from the standpoint of what it is – a homebuilding enterprise.

“Our production system is part of what differentiates us from other builders, and creates a sustainable competitive separation.  That’s what we want.  We may not be there yet.

“But – that’s where we are going.

“What we do – from the standpoint of production management in a homebuilding enterprise – combines elements of Lean, Six Sigma, Theory of Constraints, and other methods, but doesn’t mirror any one of them”, the CEO continued.  “It takes different methodologies and makes sense of them from a homebuilding perspective.”

“I’m sorry”, pleaded a superintendent, looking at the CEO.  “Please explain to me why we need to know production physics.  Why don’t you just tell us what to do?  You’ve obviously spent more time at this than us.  We would be content to get our start packages, manage our jobsites on a daily basis, and leave the understanding of production physics to someone else.”

“Fair enough”, replied the CEO.  “As an enterprise, we haven’t always been as diligent or interested as we should have been in getting those of you who actually do the work – contract it, schedule it, inspect it, approve it – to also design the work and solve problems.  There is no shortage of justification for empowering teammates to make decisions and get results.  The emphasis on results-focused, team-based performance compensation should be evidence of that.

“But – restricting the answer to the topic of discussion – RB Builders’ production system calls for more than managing jobsites on a daily basis, and assuring quality construction.

“It also calls for planning and managing production at the community level, through all three community life-stages, which includes paying attention to upstream and downstream marketing, pricing, flow, capacity utilization, maximizing throughput, controlling WIP, allocating resources – basically, everything required to plan and manage homebuilding production at the community level.

“Superintendents have to manage the schedule for each of their jobs on a daily basis, even though we also have to manage all of the schedules for all of the jobs as part of a portfolio, at both the community and company level.  Recall what we said about systems.  The parts have dependent relationships, and what affects one affects all the others.

“So, you have to do your part”, said the CEO.  “And – you can’t do it, unless you understand it.  This deep knowledge and understanding of production principles and disciplines has to become second-nature to you, a rapid, instinctive, and intuitive response to the conditions that you see, same as many other areas of RB Builders’ production system.

“As leaders, we can’t spend all of our time telling you how to do it”, he said.  “That’s not continuous improvement.  Principles and disciplines don’t change, but our deep knowledge and understanding of them – and our ability to effectively apply them – improve continuously over time.  This ongoing process of continuous improvement is as much a part of your job, as anything else.”

“Understand this”, said the intrepid, results-based consultant.  “We are going to use a lot of Lean terminology, and some other terminology, as well.  Don’t get distracted or hung-up on the terms that we use.  From a production management standpoint – from the standpoint of how you manage a production system – all of these methods have terms that can be difficult to apply in a homebuilding environment.

“We have defined the terms that are important in RB Builders’ production system.  Learn the concepts.  Adapt and apply that understanding in the context of our system.”

 

(excerpted from The Pipeline: A Picture of Homebuilding Production, Second Edition©,  published in Escape from Averageness® in March 2012 under the title Lean Homebuilding: “Our production system is a blend of methodologies . . . “)

 

      

Part I: Lean Homebuilding

Posted October 16, 2018 By Fletcher Groves

“This part is going to be production physics. It is going to seem very theoretical, and I am not even giving all of it to you. You are going to have to trust me and accept it as laws of physics. Not blindly. With an open mind. I need you to grasp the basic concepts, and just stick with me. I promise I will give you something concrete.

“But – you simply cannot understand what we are doing in reality, unless you understand the concept.

©Mark Eaton, Dreamtime.com

“I apologize. That is just the way it is.”

“You don’t need to apologize”, said the CEO.  “Just do it.  We have trusted you in a lot of ways, and, so far, you have never let us down.  We will do our best to keep up with you.”

The intrepid, results-based consultant smiled, nodded appreciatively, and then continued.

“From an overall enterprise standpoint, RB Builders has decided that it wants to embrace – as strongly as possible – the tenets of Lean Homebuilding, particularly when it comes to standardization of work, elimination of waste, visual management, kaizen, PDCA problem-solving, A-3 planning and policy deployment, and other areas.

“Culturally-speaking, RB Builders has decided that it wants to become a Lean Homebuilding enterprise, embodying the most useful and transferable elements of Lean Thinking.  In the case of RB Builders, Lean Homebuilding’s most beneficial contribution, to this point, is having embedded a process of continuous improvement.

“However – Lean Production, even crafted as Lean Homebuilding, is not the total answer.  By itself, Lean Production – or Lean Homebuilding – cannot get RB Builders to where it needs to go.

“As useful, beneficial, and vital as Lean Homebuilding has been in the area of continuous improvement, it has not been as effective in the area of production management, in the areas of what is generally known as ‘flow’, at least, not straight out-of-the-box.

“Like every other worthwhile production method, Lean Production does not come from a homebuilding environment.  That is a problem, because – as a homebuilding company – RB’s production system has different parameters, faces different conditions, and imposes different requirements.

“We could discuss this for hours, but we do not have the time”, she said.  “Let me give you several quick examples to highlight the type of “Lean issue” we see in various areas of production.

“First of all, Lean Production places a heavy emphasis on what it terms ‘Just-in-Time’ replenishment, or JIT – the principle of producing only what is needed or ordered, leveling demand, leveling production, pull, continuous flow, etc.

“But – how does that work in homebuilding?

“As the second example, consider production leveling, or heijunka.  A typical Lean manufacturer levels production based on forecast orders, not actual customer orders.  Some companies are better at making and adjusting forecasts than others, but, at best, it is a mix of “change-to-order” and “build-to-order”.  It is really “build-to-forecast”.  To the extent there is variation in the forecasts, they either have to carry a large inventory of finished goods, have to promise very long delivery dates, or have to live with a lot of excess, and unused, capacity.

“That would be the equivalent of RB Builders having to very accurately forecast the demand for every plan it offered in every community – or – live with some combination of an enormous inventory of completed homes, in addition to its required work-in-process), live with long delivery date promises, or live with a ton of unused production capacity.

“How in the world does something like that ever work in homebuilding?

“Finally”, she said, “consider the challenge of achieving continuous flow with a totally outsourced labor force, in a fragmented value stream, with as many manufacturing facilities or production plants as we have communities.  How would we make that work?

“Think about that.”

“So – are you saying that we should abandon our commitment to Lean Homebuilding?”, asked the VP of Construction.

“No.  That is not what she is saying”, answered the CEO.  “She is saying find a way to use the tools that work best for us, without regard to the religion or the denomination from which they came.

“She is saying, understand the playing field.  She is saying, understand the parameters.  She is saying, understand the world we live in.

“She is saying, do what works.  She is saying, above everything else, get results.”

 

(excerpted from The Pipeline: A Picture of Homebuilding Production, Second Edition©.  Initially published on Escape from Averageness® in March 2009, as the intrepid, results-based consultant helps RB Builders understand the benefits and the limitations of Lean Production)

 

      

Pipeline Workshops™: RB Builders: Lessons from the Pipeline©

Posted September 16, 2018 By Fletcher Groves

Builders should be able to determine, for themselves, how attuned they are to the critical tasks that enable them to thrive on the velocity side of economic return.  In furtherance of that end, we will make the RB Builders: Lessons from the Pipeline© business case (the current version of the same business case used at every Pipeline workshop™) available to any builder that asks for it.

There are only two conditions:  (1) you have to state the intent of actually completing all the exercises;  (2) if you want our methods and solutions, you have to share your results with us.

For the business case, contact:  flgroves@saiconsulting.com

The offer comes with this warning:  like everything else about a Pipeline workshop™, this business case is challenging;  if you are up to that challenge, the following excerpt is taken from how the business case opens, followed by the nature of the questions its exercises require you to consider:

“It is the first quarter of 2018.  RB Builders is aiming to extend its reputation as a builder that thrives on both the margin and velocity sides of Return on Assets, by expanding into another geographical market, via the late-2017 acquisition of a fifth existing homebuilding operation.

“Like its predecessors, the newly-acquired building division has historically generated lower operating results and business outcomes than what RB Builders considers acceptable;  in fact, this is the worst-performing of all the acquisitions, from the standpoint of both margin and velocity.

“RB Builders is confident that it can continue its record for unifying, developing, and improving the capabilities of existing teams at acquired divisions, transforming them to ones that reflect the savvy, motivated, and mutually-accountable homebuilding team of the parent operation.

“This road has become a familiar path for RB Builders.

“HISTORY OF RB BUILDERS:  A decade earlier, at the beginning of 2008, and shortly after the end of the halcyon period known as the Age of Homebuilder Entitlement®, RB Builders had begun its own transformation process, with the objective of extracting itself from what it self-described as “the tar pits of averageness”.

“RB Builders had employed a program that used four initiatives (team-based performance compensation, operational and financial transparency, accounting procedures that connected operating performance to business outcomes, and a focused process of continuous improvement) to make massive strides.

“During the ensuing five-year period (2008-2012), annual Revenue had grown from $50 million to more $121 million;  the number of closings had increased, from 200 houses per year to 453 houses per year.  Despite the pressure on margins from increasing market share, overall Gross Margin had increased from 22% to 24%;  Gross Income had grown from $11 million to almost $30 million.

“Operating Expense had increased, from $8.5 million to $11 million, far less than the same-period percentage increase in Revenue.  As a result, RB Builder’s Net Income had risen six-fold, from $2.5 million to $16.5 million;  its Net Margin had almost tripled, from 5% to 14%.

“In 2008, RB Builder’s cycle time had been 180 days;  by the end of 2012, cycle time had been reduced to 65 days.  The average amount of work-in-process had been 100 houses under construction;  the company had reduced its average work-in-process to 80 houses under construction.  The reductions in cycle time and work-in-process occurred, despite a more than doubling of the annual number of closings.

“In 2008, RB Builders had targeted an inventory turn of 2.5x;  in 2012, RB Builders had been able to more than double its physical inventory turn, to 5.7x.  In 2008, it had turned the value of its assets two times;  in 2012, it turned the value of its assets almost five times.

“Because it had maintained margins while improving velocity, RB Builders saw its main barometer of economic return – Return on Invested Assets – increase almost six-fold during the five-year period, from 11% in 2008 to 64% in 2012.  In 2013, RB Builders had moved all of its raw land holdings and developed lot inventory off of its balance sheet, and into subsidiaries, which would have further increased Asset Turn – and ROIA – had those measures been restated.

“It had been a remarkable transformation.

“The four building operations that RB Builders had previously acquired had now met – or were on-track towards meeting – their own two-year plans for increasing closings and Revenue without any increase in Operating Expense, while maintaining lower levels of work-in-process and operating under reduced construction lines of credit.

 

“NEWLY-ACQUIRED DIVISION:  Near the end of 2017, RB Builders acquired this, its fifth homebuilding operation.  This acquisition was considered a departure from RB Builders’ M&A pattern;  this new division has a different product offering, in a different price range.

In its final year of independent operation, the division had closed 32 houses, and generated $12.8 million in Revenue;  with almost $10.8 million in Cost of Sales now reflecting only its direct, variable costs, it had generated just over $2.0 million in Gross Income, producing a 16% Gross Margin.

With its $1.5 million in Operating Expense now reflecting only its indirect, non-variable costs, the division had produced $550,000 in Net Income, resulting in a 4.3% Net Income Margin.

Since it carried an average work-in-process of 20 houses under construction throughout 2017, it had a calculated cycle time of 225 days (despite job schedules that were typically 150 days) and an inventory turn of 1.6x.

By moving all of its raw land holdings and developed lot inventory from its balance sheet into subsidiaries, the division showed a restated average work-in-process of $4.56 million  (the average per-unit LIP balance of $228,000 represented an average lot takedown of $120,000 and a fully-funded LIP balance of $336,000, or 84% of the $400,000 average sales price).

Revenue of $12.8 million gave it an asset turnover ratio of 2.8x.  For 2017, with its Net Margin of 4.3% and its restated asset turn of 2.8x, the new operation had achieved an ROIA of just over 12%.

 

As the management team, here are the questions the business case exercises raise for you:

Q;  How will you address a mandate that your newly-acquired division increase its annual closings by more than 50% over a two-year period, with less work-in-process, a smaller line of credit, and the same amount of overhead?

Q:  How will you use Building Information Modeling (BIM) to improve both the margin and velocity sides of economic return?  What will your ROBIMI (Return on Building Information Modeling Investment) be?

Q:  What cost accounting practices will breakeven analysis require?

Q:  How will you create a savvy, motivated, mutually-accountable homebuilding team?  One that understands the business of homebuilding as much as it understands the homebuilding business?  How will you give every teammate a significant financial stake in the outcome?  What outcome?

Q:  How will you answer RB Builders’ contention that variation – evidenced solely by your 2017 calculated cycle time – is costing your division between $700,000 and $1.1 million in lost Net Income every year?  Is what they are asserting even possible?  After all, in 2017, your division only produced Net Income of $550,000.

Q:  How will you implement Epic Partnering™ (RB Builders’ program/process for creating relationships-arrangements of compelling mutually-shared interests) with your suppliers and subcontractors?  What are the attributes of the partnering relationship?  What are the components of the partnering program?  What does a transformational partnering process look like?  Is vertical integration an option to consider?

Q:  How will you use Business Process Improvement (BPI) to remove non-value-adding work and make the remaining value-adding work flow faster, more evenly, more smoothly, with fewer mistakes and rework?  How will you build a shorter, straighter pipe?

Q:  How will you use Critical Chain Project Management to reduce your job schedules from 150 days to 121 days, while also assuring more reliable job completion dates?

Take us up on our offer.  Request the business case.  When you have completed it, grade yourself.  How did you do?  Able to answer the questions?  Able to solve the problems?  If you find as unacceptable – we’ll call it your “degree of attunement” – you should come to the next Pipeline workshop™.

 

Come.  Participate.  Learn.

RB Builders: Lessons from the Pipeline© is the underlying business case study used at every Pipeline workshop™.  The next workshop is being held September 26-27, 2018, at the Ponte Vedra Inn and Club, in Ponte Vedra Beach, Florida.

Cost is $895.00;  for team pricing, inquire here (flgroves@saiconsulting.com).

Delivered by SAI Consulting and Continuum Advisory Group.

Sponsored by BUILDER, BuilderMT, and Specitup.

Details:  www.buildervelocity.com

 

      

I remember where I was . . . I remember who I was with . . .

Posted September 11, 2018 By Fletcher Groves

(this entry has been shared, or posted on Escape from Averageness®, every year on the anniversary of the 9/11 attacks)

On Tuesday morning, September 11, 2001, seventeen years ago, at 8:46 AM, I was in the offices of Fidelity Homes, in Venice, Florida, commencing a process mapping engagement to give this start-up homebuilding company a state-of-the-art set of business processes.  SAI Consulting’s involvement was part of a large pro bono effort, called “From the Ground Up”, that was arranged by Professional Builder, that included a number of top consultants then – and still – serving the homebuilding industry.

I was the Process Architect for Fidelity Homes.

Sitting across the table were David Hunihan and Todd Menke, two young (at the time) builders, eager to take their experience in homebuilding and pursue a National Housing Quality award.  We were well underway, when David was pulled away by a telephone call.  It was his wife, Lauren, asking if he was aware of what was going on in New York City.

As the events continued to unfold, in New York City, in Washington DC, in western Pennsylvania, we finally decided that it was impossible to focus on mapping workflow, and whatever we were doing did not seem all that important, anyway.  We cancelled everything for the rest of the day, and, in our own ways, watched and tried to process what was happening.

Bill Lurz, then a senior editor at Professional Builder, joined us the following day.  We finished the project two days later, and I drove back to my family in Ponte Vedra Beach through a tropical storm.  On that day, the welcoming embraces had particular conviction.

The article for “From the Ground Up’ was written and published in Professional Builder.  The full story of Fidelity Homes was told in a six-part series on Escape from Averageness® in 2011, coinciding with the tenth anniversary of the 9/11 attack.

I still consider the events of 9/11 to be a matter of unfinished business for this country, because we still haven’t accomplished what we set out to do.  Time has only increased my feelings about it.  We were attacked, seventeen years ago, because of who we were, because of who we unapologetically remain.  Our now-enemies see it as unfinished business, as well.

Evil is the enemy of good;  that evil has an ever-more-radical, and now secular, face.  In the presence of that evil, we have failed to clearly state what war is;  we have dismissed the understanding of war as the complete and utter destruction of an enemy.

It doesn’t matter what we think of issues like American Exceptionalism, our place in the world, the tradeoff between national security and the constitutional rights to privacy of US citizens, the threat of terrorist attacks on our own soil, the still-unaddressed murder of US diplomats and security personnel in Benghazi, the ramifications of decisions not to intervene in Iran and Syria, the ebb and flow of ISIS, Al-Qaeda, and other bad actors, the question of what happens if Iran becomes a terrorist regime with nuclear weapons.

The discussions on all of those matters miss the point.

The discussions miss the point, because they don’t address the root cause of the problem.  The core problem is not the threat of future terrorist attacks or rogue regime nuclear attacks.  The problem is the terrorists and their sponsors;   the problem is rogue nuclear regimes and their enablers.

And, the solution is not attrition, or containment, or control, or minimization, or dismantlement of the threat, or mounting an international coalition against terror, or imposing sanctions, or providing more humanitarian aid, or granting political asylum, or creating deeper understanding, or negotiating peace, or peace, itself.

It is true that, as Christians, we are told to love our enemies.  It is also true that love and forgiveness do not remove consequences, and that scripture is filled with instances when the children of God were instructed to destroy their enemies.  And – yes – the One, True God, in His righteousness and omnipotence, may decide to impart His own justice to this situation.

However – absent divine intervention – we cannot afford the “problem of conjecture”, as Henry Kissinger described it.  We have now assured ourselves that there will be a war;  if not a nuclear war, then certainly a war over who will have nuclear weapons.  Competitors that already have nuclear weapons no longer fear us;  the ones that will obtain them will not fear us, either.  We are now in a far more dangerous, more deadly situation than we were in the aftermath of 9/11.

“Fleury.  Tell me what you whispered to Janet, in the briefing, to get her to stop crying about Fran, you know, before all this, before we even got airborne.  What’d you say to her?  You remember?”

“I told her we were gonna kill ’em all.”

(The Kingdom, Universal Pictures, 2007)