Archive for June, 2015

Pipeline Workshops: Thriving on the Velocity Side of ROA

Posted June 26, 2015 By Fletcher Groves

Since homebuilding is an industry that leverages equity with debt, some measure of Return on Assets is the best indicator of economic return.  The expanded view of ROA presented by the DuPont identity makes it very clear that economic return has two components:  Margin (Return on Sales) and Velocity (Asset Turn).

EFA - ROA (capture3)

From an operational perspective, the vast majority of the assets on a builder’s balance sheet are going to be houses in some stage of construction.  That being the case, when we calculate Return on Invested  Assets, we could easily substitute Inventory Turn for Asset Turn.

In order to survive – in order to succeed – homebuilders need to do well on both the margin side and the velocity side of ROA.  Q: How much can I make on every house?  Q: How many houses can I build with a planned, finite, and controlled amount of inventory and production capacity?

As a builder, consider this:  if you generate a Gross Margin of 24% and turn your inventory twice a year, you will be outperformed – better than two-to-one – by a homebuilding enterprise that generates a Gross Margin of only 18%, but turns its inventory four times a year;  you will be outperformed in terms of Net Income, outperformed in terms of Return on Assets.

You will struggle to compete.

Your operation is the picture of a slow, marginally-productive homebuilding company;  your competitor’s operation is the picture of a fast, highly-productive homebuilding company;  your competitor generates 85% more Revenue and 40% more Gross Income than you do, with the same amount of assets.

It is also a picture of the difference between a 180 day cycle time and a 90 day cycle time, and if that contrast is too stark, then consider this:  your competitor with the 18% Gross Margin and a 4x turn produces almost the same ROA as you would with a 24% Gross Margin and a 3x turn;  that’s the picture of your competitor’s 90 day cycle time versus your 120 day cycle time.

In the face of clear differences in economic outcomes, note that your competitors – the two homebuilding companies represented in those scenarios – are exactly the same size as your company, when the real measure of size is the amount of work-in-process you each have to carry;  you and your competitors each have the same resource overhead, the same working capital requirements, the same risk profile.

Compared with other industries, homebuilding is a relatively safe bet when it comes to the question of any penalty price elasticity of supply and demand would be expected to impose on prices in the face of wide-spread, capacity-driven increases in supply.  Homebuilding is essentially 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 won’t do it.

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 next Pipeline workshop™ will be held at the Ponte Vedra Inn and Club, Ponte Vedra Beach, Florida, on October 14-15, 2015.  Cost is $795.00.  Early registration (July 1-31, 2015):  $645.00.

 

Delivered by SAI Consulting.  Sponsored  byBUILDER and Continuum Advisory Group.

For more details:  www.builderevelocity.com

 

The Pipeline: Why read it?

Posted June 21, 2015 By Fletcher Groves

(The Pipeline: A Picture of Homebuilding Production© is available on all of the bookseller websites (amazon.com, barnesandnoble.com, and booksamillion.com), and the publisher website (virtualbookworm.com)

Pipeline Book Cover

The Pipeline: A Picture of Homebuilding Production© is a business book.  It is about the principles and disciplines of production management, as they relate to – and as they are applied toward – the specific conditions, requirements, and parameters found in the homebuilding industry.

I am told that the Introductions written for business books typically answer two questions, first-and-foremost:  Why should you purchase this book?

In the case of The Pipeline©, I would say it’s because improving performance on the velocity side of the ROA equation is the best path – perhaps the only path – to achieving sustainable competitive separation.

The issue is not whether the margin side of ROA is less important than the velocity side of ROA;  margin is neither unimportant nor less important.  Gross Income derived from increasing how much you make on each house you build (margin) has the same contributory value, dollar-for-dollar, as the Gross Income derived from building more houses with a finite and controlled amount of inventory and capacity (velocity).

Nor is it necessarily a choice.  Sometimes the circumstances favor one or the other, but we don’t necessarily have to choose between efforts to increase Return on Sales and efforts to increase Asset Turn;  margin and velocity are driven by different aspects of the business, and they generally don’t react to, or adversely affect, each other.

It is, simply, that higher margin, while as desirable, beneficial, and important as higher velocity, is not a strategy for creating a lasting competitive advantage;  between higher margin and higher velocity, higher margin is the easier, more common strategy.

The same is even more true of the opposite to higher velocity, which is higher capacity.  Adding production capacity (and the inventory for it to work on) is a “more-for-more” proposition.  It’s the easy, well-traveled road;  anyone can resort to adding production capacity, but don’t expect it to set you apart.

As a business strategy, higher margin and more capacity can be co-opted.  True, sustainable, competitive separation comes more from doing what your competition will not or cannot do.  It is the hard, demanding stuff.  It doesn’t come from being satisfied with adopting other builders’ “best practices”;  it doesn’t come from contentedness with being good, no-better-but-no-worse than your competition, or from taking a middle-of-the-road approach to delivering the value your buyers demand.  

The world doesn’t need any more average homebuilding companies;  it already has enough of them.

 

The Pipeline: A Picture of Homebuilding Production© has led to the Pipeline workshop, a series of public workshops sponsored by Hanley Wood and Continuum Advisory Group;  the next Pipeline workshop™ will be held October 14th and 15th, at the Ponte Vedra Inn and Club, in Ponte Vedra Beach, Florida.

More information:  www.buildervelocity.com

 

“We will see you again.”

Posted June 17, 2015 By Fletcher Groves

This is part of the eulogy I delivered at my dad’s memorial service, twenty years ago.  He died on June 18, 1995, a Sunday, which happened to be Father’s Day;  making each Father’s Day since very poignant.

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I believe that you can understand the most about a man by looking at his relationships.

To my father’s friends:

I know how much he loved you, how dedicated he was to you, and he knew how much you loved him.  He expected to be there for you, and he was thankful that you were there for him.

I learned at an early age that my dad’s friends were special, that Florida Gators, in particular, were special, and that the rarest of all animals, the Golden Era Florida Gator, was to be specially revered.

In these fast-paced times, where so much seems temporal, I admire the friendships my father enjoyed with you.  You do not see those kinds of friendships as often anymore;  you should put whatever it is in a bottle and save it, because they are not making any more of it.

To my father’s business associates and employees:

I know how much he enjoyed his association with you.  When I was younger, I would ride the bus downtown to have lunch with him, and it was obvious to me, as he introduced me to all of you, how much pride he had in that association with you, and the pleasure he took in your companionship.

To his grandchildren:

Henley and Lauren, he loved you with all of his heart, and took so much pride in the fact that you were his legacy.

To my sister:

Pam, I know that you have your own special thoughts about Dad, and you would have expressed them in your own way, if you were standing in my place.

To my mother:

I will always be grateful for the providence that took my dad to the University of Florida, and placed him in that dormitory window, when he saw first saw you.  You were married for 46 years.  You had a total partnership.  You were best friends;  you were soul mates.  In so many ways, you were just alike.  He communicated his love to you every day of your marriage.  He went out of his way to let you know how much you meant to him.

 

One of the greatest gifts that God has given me is the honor and privilege of being my father’s son.  I love and admire him more than he ever knew.  He was always there for me, even when it was very difficult.

My father taught me what it meant to be a man.  By his words and his example, I learned about honesty, loyalty, courage.  He taught me never to quit.  He gave me the expectation and the confidence to succeed, but he also gave me the courage and freedom to fail.  He taught me to see the world the way I chose to make it, not the way I wished it was.

My dad was a huge part of my life when I was growing up.  He was my hero in neighborhood football games.  He was my Little League coach;  I watched Don Larsen pitch his perfect game with my dad.  I saw my first Florida game with him. He taught me to play golf.

What was he like?

My mother says that my father was a simple man.  I think she means that he was an uncomplicated man.  My dad knew who he was;  he knew who he wasn’t.  He had very uncomplicated values.  He was honest, he was loyal, he was fair.

My dad saw things mostly in black and white.

He had uncomplicated aspirations and expectations.  He wanted to be a good husband, father, and grandfather to his family.  He wanted to be there for his friends.

These were the things that were important to him.

He was a man of few words.  When I was about 12 years old, we were out playing catch, and he motioned for me to sit down.  He said, “Son, is there anything you want to know about girls?”

I said, “Not really.”

And my dad said, “Glad to hear it!”

He was also direct.  When I was in high school, he and I were having a conversation.  When he appeared to be finished, I said, something to the affect that he was insinuating such-and-such, to which he stared at me and replied, “Son, I don’t even know how to spell that word”.

My father was very much a man at peace with himself.  During late summer Saturday afternoon thundershowers, he took such pleasure in just standing on the porch and watching the rain.  Nothing else, just watching.  I wonder what his thoughts were.

I’m glad my dad retired early from First Florida.  It gave him the time to do a lot of the things he and my mom wanted to do, things they wanted to see, places they wanted to go.

He had precious years to be a grandfather.

Everyone thought my dad would live at least another 20 years.  His dad lived to almost 90, and his mom lived into her 90’s.

We would give anything to see my dad take one more walk with my mom.  See him sit on his porch in North Carolina.  Play one more round of golf with him.  See the Gators play one more game.  See him fix one more banana milkshake for Lauren and Henley.

But, we won’t.

God does not give us immortal bodies.  He only gives us immortal Spirits.  We can’t pick our time.  For any of us, death is just one heartbeat away.

The great thing about trains in this country is that they always run on time.  Forest Gump, a character that my dad loved, in the last movie he saw, might have said it this way:  “Momma told me, God is like a train.  He never comes too early, and He never comes too late”.

It is an interesting question for Christians.  Like a train, God always comes on His time, but He doesn’t give us the schedule.  Sometimes, we are fortunate enough to hear the whistle around the bend;  sometimes the train just appears at the station. And we are supposed to be ready.

I had a conversation with my dad one week before he died. We talked about what it meant to be a Christian.  I wanted some answers from him about where he stood.

He looked at me, and said, very simply, “That is what I believe.”

My dad’s train arrived at 10:40 pm, June 18, 1995, and departed shortly thereafter on its final run.

He made his train.

The apostle John, closed his third, and last, epistle with these words:  “ . . . Having many things to write to you, I did not wish to do so in pen and ink, but I hope to come to you and speak face to face, that our joy may be full . . . “.

To my father:

We love you.  We will miss you.  We will never forget you.

But, we will see you again.

 

The Pipeline: Foreword by Pascal Dennis

Posted June 14, 2015 By Fletcher Groves

Pascal and I are, as he says, friends and colleagues;  he graciously wrote this foreword for The Pipeline: A Picture of Homebuilding Production©.

Pascal is a professional engineer, and the president of the international consultancy group Lean Pathways Inc.  He is the author of five books:  Lean Production Simplified, Getting the Right Things Done – a Leader’s Guide to Strategy Deployment, Quality, Safety, and Environment – Synergy in the 21st Century, Andy & Me, The Remedy, and Reflections of a Business Nomad.

Pascal is a four-time winner of the Shingo Prize for Excellence.

Pipeline Book Cover

“When my friend and colleague Fletcher Groves told me he was writing a book explaining homebuilding production principles and disciplines, I was pleased and supportive.

“Fletcher is a man of energy, enthusiasm, and profound experience who has taught me a ton about this fascinating and essential industry (it’s been my good fortune to work with Fletcher and the great Jack Suarez on the Inland Homebuilding System).

“Fletcher is unique in that he combines a deep knowledge of Lean (also known as the Toyota Production System), Theory of Constraints, Business Process Management, and Finance – a powerful combination.  He thereby avoids the tiresome ‘theological’ debates – Lean vs. TOC vs. Business Process Reengineering vs. Six Sigma and so on – that distract and confuse.  As Ernest Hemingway once observed, in a different context:  ‘It is all true’.  The point is to integrate powerful ideas toward achieving prosperity for our business, team members, and community.

“He is also a man of decency and integrity which comes through in The Pipeline‘s sub-theme of what the ancients called Fortitude – the guts to confront brutal facts without ever losing faith in the ultimate outcome.

“I was lucky enough to grow up professionally at Toyota Motor Manufacturing Canada, and to spend extended periods of time at leading Toyota facilities in North America and Japan.  Our (very patient) Toyota senseis emphasized the concept of a system – an organized set of parts with a clearly defined goal.  Absent a system, at best, we sub-optimize;  at worst, we waste our time.

“And so, Fletcher has done us a great service.  He has produced an engaging and accessible overview of what W. Edwards Deming has called the ‘profound system of knowledge’, as it applies to homebuilding production.  RB Builders, our fictional production homebuilding company, faces the very real challenges, and learns a powerful way of thinking and managing.

“Homebuilding has endured a terrible downturn.  But it will come back, as it always has.  If we can learn and apply the principles explained in The Pipeline, if we can learn to think of homebuilding as a system, as RB Builders does in the story, we can blunt future boom-bust cycles, and thereby reduce human misery and preserve hard-won prosperity.

“We’re early on in this essential journey;  a respected colleague suggested that, apart from a handful of progressive companies, homebuilding is where auto manufacturing was a century ago.

“The Pipeline: A Picture of Homebuilding Production is an invaluable guide.”

 

The Pipeline: A Picture of Homebuilding Production© is available on all of the bookseller websites (amazon.com, barnesandnoble.com, and booksamillion.com), and the publisher website (virtualbookworm.com).

This book was also the inspiration for the series of Pipeline workshops™, sponsored by Hanley Wood and Continuum Advisory Group.

More information:  www.buildervelocity.com

 

The Pipeline: What Others Are Saying

Posted June 6, 2015 By Fletcher Groves

Reader reviews and recommendations for The Pipeline: A Picture of Homebuilding Production©, available on all of the bookseller websites (amazon.com, barnesandnoble.com, and booksamillion.com), and the publisher website (virtualbookworm.com).

Pipeline Book Cover

“Other industries have been executing on improving business productivity, predictability, and profitability for years, with little of that learning making it to the homebuilding industry.  When I was introduced to Fletcher Groves over a decade ago, he was one of the few who could introduce us to this thinking, and what he shared with us has become part of our culture, part of who we are.

“With The Pipeline, Fletcher has made it even easier to understand these ideas, taking a great body of knowledge and transforming it into a story directly applicable to homebuilding.  You quickly get the perspective you need to secure a strong and defendable future for your business.

“If you want do more than survive in this business, read this book.”

Robert Bowman, President, Charter Homes & Neighborhoods, Lancaster, PA

Charter Homes & Neighborhoods earned the 2013 GOLD National Housing Quality Award

 

“We would recommend The Pipeline: A Picture of Homebuilding Production to anyone just entering the homebuilding industry, or industry veterans that have been building homes for decades.  The story of RB Builders breaks down the important drivers of profitability and return on investment into simple-to-understand components that can be influenced everyday by team members.

“Over the past decade, incorporating the concepts that Fletcher depicted in the narrative of RB Builders, Jagoe Homes has not only been able to survive the recession, but to strengthen our position in the marketplace and increase our profitability and return on investment.

The Pipeline: A Picture of Homebuilding Production will provide its readers with the same tools and concepts that Fletcher helped us with at Jagoe Homes to improve our business results.”

Scott and Brad Jagoe, Jagoe Homes Inc., Owensboro, KY

Jagoe Homes was named 2010 Builder of The Year by Professional Builder

 

“Currently reading with my construction leadership team- excellent!”

Chris Harrison, SVP – Construction, Robson Communities, Sun Lakes, AZ

 

The Pipeline is a great way for me to have all the concepts you have taught me over the last 20 years.  The book is the next best thing to having you in our shop coaching. I have read about every book that claims to cover homebuilding, and none have had the impact that your book will.

“It is a reference that I will look to time after time.”

Bud Ohly, former President, Eagle Construction of Virginia, LLC, Richmond, VA

 

“Homebuilding books are often dry and uneventful. This one reads more like a story, yet is still full of valuable information.  Groves knows his stuff.  I REALLY enjoyed it, and now my head is filled with ideas on how to attack some of our processes better… Time to go to work – worth the purchase!”

Leslie M. Day, former President, Inland Homebuilding Group, Inc., Tampa, FL

 

“Homebuilders focus on margin;  it’s what we think about;  it’s what we benchmark.  What we need is the ability to more-fully understand the relationship between margin and velocity, as the co-determinants of economic return.

“In The Pipeline: A Picture of Homebuilding Production, Fletcher clearly explains how business outcomes are maximized, not simply by controlling and extracting maximum value from its direct variable costs – by increasing margin – but, also by leveraging the indirect, non-variable costs that represent the internal resources associated with its overhead, exploiting the external resources associated with its suppliers and subcontractors, and limiting the amount of work-in-process.

“It is those last three efforts, together with managing production as a system, that determine the utilization of production capacity.

“That is what increases velocity.“

Ben Walters, former COO, Tennessee, Dock Street Communities, Inc.

 

“First, congratulations on producing a powerful and engaging book that can have significant impact on the homebuilding industry.  Second, the book holds the keys to systematic and continuous improvement within any industry.  And, your shaping of the environment for the production homebuilder makes the discovery even more relevant.  Third, you have captured what you set out to do.

“And, the conclusion of The Pipeline is beautiful in its simplicity:  Discipline, Context, Perspective.  Improving business performance boils down to getting the job done – viewing the issue, sustaining the effort, and getting the results – in three critical dimensions.”

Hoyt G. Lowder, HGB & Associates, LLC, Tampa, FL (former Director, FMI Corp.)

 

“In writing The Pipeline, Fletcher has integrated what he has learned as a banker, homebuilder, process engineer and consultant in a variety of fields to create a practical (but interesting and amusing) handbook for homebuilders.

“The approach and lessons drawn from a variety of relevant process and quality sources make this book a meaningful resource for any business that has a variety of processes, moving parts and dependencies crying for definition and management.

The Pipeline should also become a textbook for any building construction student and a resource for others engaged in the struggle for the definition of quality in business.  Again, my congratulations on a brilliant work.”

Kent Steen, Vice President – Marketing/Sales, Bitrage NOVIS Corporation

 

“Although I am not from the homebuilding profession, I found The Pipeline to be instructional, informative, easy to read, and thoroughly entertaining.  The dialog was believable, crisp, and to-the-point.  I’m impressed with Fletcher’s facility with words and the style he employed – like The Goal and The Challenge, two of my favorite books.  Fletcher is a natural writer.  The Pipeline was easier for me to read (than The Goal and The Challenge) because Fletcher used job titles rather that a person’s given name.  I did not have to stop and think what function the individual performed.  Fletcher cleverly summarized the key concepts of each preceding chapter before introducing the new.

“I liked the erasable board and flipchart use of the intrepid, results-based consultant, as she documented key concepts and then referred back to them when necessary.  I think using the CEO character to introduce, support, confirm, and explain – as necessary – company policy and direction, was a stroke of genius.  We all benefit greatly when we can understand how the big boss thinks.  That understanding provides immeasurable guidance to subordinate day-to-day choices.

“For me, a logistics professional and a practitioner in continuous process improvement, Chapter V: Production Processes was spot on.  The discussions regarding systems, processes, variation, waste, Theory of Constraints, bottlenecks, buffers, pull v. push, balanced capacity v. unbalanced capacity, and etc. were important, striking, and remarkable.  True genius, in my humble opinion!

“For those of you in the homebuilding profession, The Pipeline is a must read.  For those of us in other professions, The Pipeline is an informative, thought-provoking, and fascinating work that helps us understand how a successful homebuilding company can improve to be best-in-class.  There are many lessons that the reader can borrow from RB Builders and apply to his/her situation.”

Joe Kinsey, President, Operating Results, Inc., Orange Park, FL

 

The Pipeline: A Picture of Homebuilding Production© tells the story of how RB Builders learned the principles of homebuilding production in the turbulent years following the end of the period known as the Age of Homebuilder Entitlement®.  It is a story told in the exchanges of dialog between team members, senior management, and RB Builders’ trusted, results-based advisor/partner.

The first objective was to create a deep understanding of a production system with an enduring visual image, the elements of which are crafted to the specific conditions, requirements, and parameters of the homebuilding industry.

The second objective was to create a realization and acceptance that improving performance on the velocity side of the ROA equation is a path – perhaps the best path – that a homebuilder has to achieving sustainable competitive separation.

The Pipeline© is about the specific application of underlying principles and disciplines of production that are universal – physics rooted in the laws that govern all production systems.  The book is about using the tools that work for homebuilding production, without regard to the consulting religion from which they come.  The Pipeline© makes the connection between operating performance and business outcomes.

This book was also the inspiration for the series of Pipeline workshops™, sponsored by Hanley Wood and Continuum Advisory Group.

More information:  www.buildervelocity.com