Archive for October, 2013

Pipeline Workshops: Right for you?

Posted October 27, 2013 By Fletcher Groves

Homebuilding production has to be managed as a system;  without that systems-level understanding, production cannot be managed well, if at all.  Unfortunately, that type of ordered, process-centric, capacity-focused thinking is not the homebuilding industry’s natural tendency;  it clashes with the deal-driven, product-centric, margin-focused mentality that dominates homebuilding.

That understanding is going to be critical, because in the industry that is slowly emerging from the worst recession in three-quarters of a century, it’s not going to be a choice between higher margin or higher velocity;  it’s going to be the challenge – and the opportunity – of producing higher margin and higher velocity.

Sustainable competitive separation comes from doing both, and doing both of them well.

Pipeline workshops are a two-day immersion into the production physics – into the principles and disciplines – that enable homebuilders to thrive on the velocity side of economic return, that enable builders to thrive on the velocity side of Return on Assets.  The understanding and expertise delivered in a Pipeline workshop pulls extensively from The Pipeline: A Picture of Homebuilding Production.

Pipeline workshops are designed to transfer in-depth knowledge and create an intuitive, instinctive understanding of production principles and disciplines, focused specifically on homebuilding production management.  Pipeline workshops are not a lecture series;  the material is comprehensive, the learning is intense, and the format is interactive and competitive;  attendance is capped at 40 attendees.

In a Pipeline workshop, the principles and disciplines governing homebuilding production are taught through effective presentation, but they are learned through application.  Pipeline workshops use a progressive series of production scenarios that simulate homebuilding production in the real business world, in an environment of variation and uncertainty, where operating decisions produce economic results – sometimes good, oft-times bad, occasionally meeting or exceeding the budgeted performance, oft-times not.

Those results – good or bad, sufficient or deficient – are diagnosed at the conclusion of each game, so that the connection between operating decisions and business outcomes is clarified, and the principles and disciplines explained in the workshop sessions are reinforced.

What you gain from a Pipeline workshop:

  • a strong, visual image of a homebuilding production system – its purpose, size, cost, and capacity.
  • an elegant understanding of how operating decisions drive business outcomes, and how the measures of operating performance connect to the measures of profitability and economic return.
  • an ordered manner of thinking and reasoning about the relationship and interaction of the dependent parts that comprise a homebuilding production system.
  • a systemic approach to solving production problems and managing finite production capacity.
  • a blended approach to process and project portfolio management that addresses the unique attributes and parameters of homebuilding production.
  • a way of managing homebuilding production that significantly reduces build/cycle times, increases production throughput, and controls construction work-in-process.

Is a Pipeline workshop right for you?   

Pipeline workshops are not about job titles, operational scope, or company size.  They are intended for anyone charged with the critical responsibility of managing – or managing the interaction with – homebuilding production as a system at some level of a homebuilding enterprise;  Pipeline workshops are for those who must understand and manage homebuilding production, and drive results, including:

  • C-Level Executives – Presidents, CEOs, CFO’s
  • Divisions and Regional Managers
  • Vice Presidents of Operations and Construction
  • Vice Presidents of Sales
  • Production Managers
  • Construction Managers

(The first Pipeline workshop will be held at the Ponte Vedra Inn and Club, Ponte Vedra Beach, Florida, on March 12-13, 2014.  Cost is $750.00.  Early registration is available through December 10, 2013, and the cost is $600.00)

Delivered by SAI Consulting.  Sponsored by BuilderMT and Big Builder (Hanley Wood).

For more details:  www.buildervelocity.com

In order to succeed in the industry that is slowly emerging from the worst recession in three-quarters of a century, homebuilders have to learn to focus on more than the margin side of the business.  How much a builder makes on every house – i.e., the ability to generate a sufficient margin – will no longer be enough to assure success;  success will have just as much to do with how many houses a builder can build with a planned, finite, and controlled amount of production capacity.

Consider this:  a homebuilding enterprise that generates a Gross Margin of 24% and turns its inventory twice a year will be outperformed – by a 2:1 margin – by a homebuilding enterprise that generates a Gross Margin of 18% and turns its inventory four times a year;  outperformed in terms of Net Income;  outperformed in terms of Return on Assets.

The former is the picture of a slower, marginally-productive homebuilding company, and the latter is the picture of a fast, highly-productive homebuilding company;  the later generates twice the Revenue and half-again more Contribution.  Someone might suggest that the example of these two homebuilding companies presents a contrast that is unrealistically stark, a 180 day cycle time vs. a 90 day cycle time.  Then, also consider this:  an 18% Gross Margin with a 4x turn is the exact equivalent of a 24% Gross Margin and a 3x turn;  90 days vs. 120 days.

In the face of clear differences in economic outcomes, it is important to note that the homebuilding companies in all three scenarios are exactly the same size, when the real measure of size is the amount of work-in-process they each have to carry;  they have the same resource overhead, the same working capital requirements, the same risk profile.

For the most part, homebuilding is a build-to-order process, which tends to regulate short-term supply.  Moreover, the demands of higher productivity are so tough, require so much rigor, so much discipline, so much resolve, that most builders are discouraged from doing it.  So, it is reasonable to conclude that the price elasticity of supply and demand that would reduce prices in the face of wide-spread, capacity-driven increases in supply is not going to happen.

It’s not a choice between higher margin or higher velocity;  it’s the challenge – and the opportunity – of producing higher margin and higher velocity.

Pipeline workshops are a two-day immersion into the production physics – into the principles and disciplines – that enable homebuilders to thrive on the velocity side of economic return, that enable builders to thrive on the velocity side of Return on Assets.  The understanding and expertise delivered in a Pipeline workshop pulls extensively from The Pipeline: A Picture of Homebuilding Production.

 

The first Pipeline workshop will be held at the Ponte Vedra Inn and Club, Ponte Vedra Beach, Florida, on March 12-13, 2014.  Cost is $750.00.  Early registration (through December 10, 2013) is $600.00)

Delivered by SAI Consulting.  Sponsored by BuilderMT and Big Builder (Hanley Wood).

For more details:  www.buildervelocity.com

Prologue to a Pipeline

Posted October 13, 2013 By Fletcher Groves

(excerpted from The Pipeline)

 

As this story is being told, it is the end of 2007, and RB Builders is embarking on a long journey to radically improve operating performance and the resulting business outcomes;  at the end of 2007, the beginning of 2008, the company could not have known the depth and duration of the housing and economic recession they had entered.

The plan was to achieve targeted increases in Gross Income above a currently-achievable baseline, by driving continuous improvement in operating performance through a series of short duration initiatives with targeted, measurable results, complemented by a team-based performance compensation plan that gave every teammate a financial stake in the achievement of that business outcome.

Very early in this effort, the company had concluded (with the help of its intrepid, results-based consultant) that – among its other, not-so-insignificant problems, and despite its considerable experience and past success – it actually knew surprisingly little about the principles and disciplines that relate to homebuilding production.  Moreover, RB Builders really didn’t have a picture of what production should look like.

In the past, RB Builders tended to sell as many homes as it could, start them whenever it wanted, and finish them whenever it could.  In the company’s collective mindset, production was the sum of a thousand independent decisions, made without regard for production as a system subject to – and affected by – events of dependency or relationships of cause-and-effect.

From a production standpoint, the company had always endured long cycle times (upwards of 180 days), low inventory turns, and an uneven rate of sales, starts, and closings.  In the final, halcyon years of “The Age of Homebuilder Entitlement”, closing dates came and went, while RB Builders’ sales managers spoke proudly of six month “contract backlogs”, as if that were some kind of virtue.  The contract backlogs were now a thing of the past, but, strangely, the other consequences of RB Builders’ production practices remained.

The internal production constraint of previous years had been replaced with an ominous external market constraint, but RB Builders’ trade partners still complained about jobs that weren’t ready as promised, all the while being tugged in different directions, as the company’s superintendents (focused on protecting their individual bonuses) fought for resource availability.

 

(The Pipeline: A Picture of Homebuilding Production is available on the publisher website (virtualbookworm.com), through the author website (thepipelinebook.com), as well as amazon.com, barnesandnoble.com, and booksamillion.com)

 

The Demon in Process Religion

Posted October 7, 2013 By Fletcher Groves

(excerpted from The Pipeline)

 

“Let’s pick up where we left off”, said the intrepid, results-based consultant.  “From a production perspective, what do we need to understand about processes?”

“The first area on my list is variation and uncertainty”, said the VP of Construction.

“One of the principles of Lean is to remove waste from the value stream”, he said.  “Variation is a form of that waste, and Lean attacks waste with kaizen and PDCA.  In some improvement circles, the principles of Lean and Six Sigma have been blended into Lean Six Sigma, and the Six Sigma portion of LSS focuses on removing variation from processes.

“But – if this is process religion, then the demon is named Murphy.

“If something can go wrong, it invariably will go wrong.  And – it will go wrong at the worst possible time.  We see it over and over and over again, and the result is uneven flow and long cycle times.  Maybe some other stuff I don’t even understand yet.”

“I take it that you think Murphy is somehow different, or is deserving of special consideration?”, the intrepid, results-based consultant asked, writing as she spoke:

VARIATION/UNCERTAINTY  

“Yes, from this standpoint”, he said.  “There are two kinds of variation.  There is common cause variation and there is special cause variation.  The attributable variation – or common cause variation – is largely what Lean attacks with its kaizen and PDCA.  The natural variation – or special cause variation – is different;  it is more akin to uncertainty, and usually it is beyond our control.  I want to know how our system protects itself – how it buffers itself – from both variation and uncertainty.”

“Having an understanding of variation and uncertainty is important”, said the intrepid, results-based consultant, “because variation lies at the heart of every other production principle.  It affects everything.  The elements of a production system – the elements of production processes – are largely driven by the need to control variation and deal with uncertainty.

“And – yes – there is a difference between variation and uncertainty.  The common cause type of variation is a reflection of our ability – or our inability – to achieve repeatable results, while uncertainty, what we call special cause variation, is a reflection of not knowing what the results will be.  Uncertainty is about risk.  It is unexpected.  Uncertainty is what causes results to extend beyond the range of normal variation.”

“The point is – whether you’re dealing with variation or dealing with uncertainty – you still have to protect the system from its effects.”

 

(The Pipeline: A Picture of Homebuilding Production is available on the publisher website (virtualbookworm.com), through the author website (thepipelinebook.com), as well as amazon.com, barnesandnoble.com, and booksamillion.com)