Archive for January, 2015

This is a different world for the homebuilding industry that has emerged from the worst economic and housing recession in three-quarters of a century.  The traditional focus on how much a builder makes on every house – i.e., the ability to generate a sufficient margin – is no longer enough to assure success;  that success now has just as much to do with how many houses a builder manages to produce with a planned, finite, and controlled amount of inventory and 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.

Does this scenario of 180 day cycle time vs. 90 day cycle time represent too stark a contrast?  It doesn’t for us;  we see it all the time.  Nevertheless, consider a less-stark comparison:  an 18% Gross Margin with a 4x turn is the exact equivalent of a 24% Gross Margin and a 3x turn;  it is the picture of 90 day cycle time vs. 120 day cycle time.

These scenarios present clear differences in economic outcomes, yet all three homebuilding companies are exactly the same size, when the truest, most relevant measure of size is the amount of work-in-process they each have to carry;  they have exactly the same resource overhead, same working capital requirements, same risk profile.

It’s no longer a choice between higher margin or higher velocity;  it’s the necessity 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 next Pipeline workshop will be held at the Ponte Vedra Inn and Club, Ponte Vedra Beach, Florida, on March 11-12, 2015.  Cost is $795.00.  Early registration, open through January 31, 2015, is $645.00.

Delivered by SAI Consulting.  Sponsored by Big Builder (Hanley Wood) and Continuum Advisory Group.

For more details:  www.builderevelocity.com