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At every Pipeline workshop™ we have ever done, one of the most important takeaways, one realized by virtually every homebuilding company executive in attendance, is simply this:  something has to be done with the notoriously fragmented value stream that defines their industry, if they are going to have any hope of managing production as a system.

In their landmark 1996 book, Lean Thinking, Jim Womack and Dan Jones defined a value stream as “the set of all the specific actions required to bring a specific product through the three critical management tasks of any business.”  They went on to describe a set of processes, which they termed tasks:  a problem-solving task, an information management task, and a physical transformation task.

By definition, a value stream does not belong to an industry;  it is enterprise-specific;  each value stream belongs to its enterprise;  every homebuilding company has its own value stream.

Nevertheless, it would be a challenge to cite another industry, in which the sequence of tasks in the most common versions of that industry’s core-critical process (start-to-completion, i.e., the physical transformation task) is entirely performed by so many separate entities, as is commonly seen and accepted in the homebuilding industry.

Look at the value stream of almost any homebuilding enterprise, and you will find a combination of independent, separately-owned, non-proprietary, non-exclusive, unaffiliated businesses, each having their own goals.

In her final comments to the team at RB Builders (The Pipeline: A Picture of Homebuilding Production©), the intrepid, results-based consultant reviews the components of RB Builders’ production management system – the RB-IPS – and says this about the final component:

“It is a production management system that specifies the means by which RB Builders fosters epic relationships of mutual interest with its building partners and supply partners.  The RB-IPS provides both the process and the program for progressively transforming subcontractors and suppliers into true partners, into trusted allies, joined by shared, mutual interests.”

Builders attending Pipeline workshops™ consistently emphasize the need for stronger trade-partnering, better coordination, more cohesiveness, a more unified approach to managing the trade side of production.

They acknowledge the obvious:  they do not have the internal resources necessary to perform “the set of all specific actions” required to bring houses through the start-to-completion process, and they are completely dependent and reliant on skilled construction resources that are in short supply;  they understand that they can no longer dictate the terms.

We have a term for that practice:  we call it strip-mining the value stream.

Is vertical integration the answer?  We have been suggesting, for almost 20 years, that builders at least consider that possibility, that they find a way to discontinue what amounts to a strip-mining operation.  That suggestion is usually dismissed as a radical, undoable notion.

Which is always where opportunity lies, in radical, undoable notions.

Whether or not vertical integration has a future strategic role to play in the homebuilding industry remains to be seen.  It is an area that has been covered in the Lessons from the Pipeline© business case at previous Pipeline workshops™, and it is a new section in the second edition of The Pipeline: A Picture of Homebuilding Production©, which was released for publication last year.

The outcome of the vertical integration question doesn’t change the underlying imperative.  Success in unifying the effort of even the existing value stream has profound ramifications, on both the margin and velocity components of Return on Assets;  and success in unifying the value stream has profound implications for creating competitive separation.

With or without vertical integration, addressing the issue will require Epic Partnering™.

Come.  Participate.  Learn.

 

Epic Partnering™ – the attributes of the relationships being fostered, the program, the process – is one of the five Velocity Accelerators® (together with Business Process Improvement, Critical Chain Project Management, Building Information Modeling, and Open-Book Management and Team-Based Performance Compensation) that will be explored at the next Pipeline workshop™, October 18-19, 2017, at the Ponte Vedra Inn and Club, in Ponte Vedra Beach, Florida.

The cost is $875.00 per person;  for team pricing, inquire here (flgroves@saiconsulting.com).

Delivered by SAI Consulting and Continuum Advisory Group.  Sponsored by BUILDER and BuilderMT.

Details:  www.buildervelocity.com

 

Velocity Accelerators®: Business Process Improvement

Posted August 26, 2017 By Fletcher Groves

An overwhelming portion of SAI Consulting’s work, in and out of homebuilding, has been about enabling clients to structure themselves around their core-critical business processes;  Business Process Improvement is the area of our practice for which we are most recognized.

It is a similarly important area for Continuum Advisory Group, the consulting firm that joins SAI in the facilitation of open, sponsored Pipeline workshops™ and seminars™.

There is a good reason for our firms’ collective focus on improving (and managing) business processes, and it is simply this:

It is the most basic, most fundamental proposition in all of business:  the reason an enterprise exists – every business enterprise, certainly every homebuilding enterprise – is to make money;  the way an enterprise makes money is by delivering value to its customers and other stakeholders;  that value can only be delivered through the work that the enterprise performs;  that work has to be performed in some manner of workflow;  the most common form of that workflow is work performed in processes.

Make money . . . by delivering value . . . through the work you perform . . . in processes.

From a business standpoint, processes are critically, centrally important;  they exist – they matter – whether homebuilders are intentional about them or not.

How important is Business Process Improvement to a homebuilding company?  Important enough that we sacrificed one of the highly-regarded Pipeline games™, so that we could elevate improvement of workflow to the level of a Velocity Accelerator®.

We always make the point that Pipeline workshops™ are about thriving on the velocity side of Return on Assets®, but better process workflow pays off on both sides of economic return;  it drives higher margins and higher velocity, drives a higher Return on Sales as much as it drives higher Asset Turn.

And – this is why:

We don’t even consider Start-to-Completion – the sub-process of Prospect-to-Closing that is the aorta of workflow in a homebuilding company – to be process management;  it is multi-project management with embedded and supporting processes, and all of the non-supervisory work is performed by external resources (trades and suppliers).

Since it is not managed like a process, we don’t map it.

Yet, the results from dozens of mapping engagements we have performed that don’t even consider Start-to-Completion show that 25% of all the work a homebuilding company performs – the work that consumes a building company’s overhead – is completely non-value-adding.

Here is the bottom-line:

If your Operating Expense represents – meaning it consumes – eight percent of Revenue, you are throwing away $20,000 of every $1,000,000 in income you generate.

 

The most visible element of BPI (and BPM) is the mapping of process workflows;  process mapping involves far more than documenting the current workflow;  it includes redesigning those workflows in ways that improve them, which invariably reveals other issues – root causes, core problems.

Which makes understanding and improving workflow the means to a much more important end.

Business Process Improvement is the tip of the spear, the front-end of a continuous improvement methodology in which the activities and elements of workflow that add value are preserved, the activities and elements that add no value are eliminated, and the remaining activities and elements that enable value are refined to make the workflow more clear, more consistent, more streamlined, more connected, more succinct, more fit for its intended, defined purpose.

The analogy from our Pipeline workshops™ is that we want a shorter, straighter pipe.

Because it is so foundational, it is impossible to overstate the importance of understanding and improving the way work is performed, before starting down the long road on other improvement initiatives, before the process of continuous improvement moves anywhere else.

In addition to being the means to a more important end, and the front-end of a process of continuous improvement, BPI ushers in a new perspective.

It shifts the organizational view away from the structure of work performed in functions. towards the flow of work performed in processes;  BPI shifts the perspective from vertical to horizontal;  it rotates a homebuilding enterprise 90 degrees from vertical, lays the enterprise on its side, and aligns its workflow with the value it seeks to create.

It’s about getting horizontal.

Lastly, processes are also one of the elements of the operating model that forms any strategic value discipline that serves to deliver exceptional levels of the specific and distinctive value demanded by a narrowly-defined segment of homebuyers.

 

Come.  Participate.  Learn.

Business Process Improvement is one of the five Velocity Accelerators® (along with Critical Chain Project Management, Epic Partnering™, Building Information Modeling, and Open-Book Management and Team-Based Performance Compensation) that will be explored at the next Pipeline workshop™, October 18-19, 2017, at the Ponte Vedra Inn and Club, in Ponte Vedra Beach, Florida.

The cost is $875.00 per person;  for team pricing, inquire here (flgroves@saiconsulting.com)

Delivered by SAI Consulting and Continuum Advisory Group.  Sponsored by BUILDER and BuilderMT.

Details:  www.buildervelocity.com

Pipeline Workshops™: Velocity Accelerators®

Posted August 20, 2017 By Fletcher Groves

If you had to choose a single word to associate with a Pipeline Workshop™, it would be velocity – speed in a purposeful direction.

We want to elevate velocity to an equal standing with the other component of economic return, which is margin.  In each Pipeline workshop™, we select specific areas of production management for a deeper dive – more discussion, pointed and challenging exercises from the RB Builders: Lessons for the Pipeline© business case, etc.

They are known as Velocity Accelerators®.

Velocity Accelerators® tend to be important areas that do not receive sufficient industry attention;  in fact, beyond a passing understanding, they are often the first meaningful exposure to those areas that builders attending a Pipeline workshop™ have experienced, making these sessions something of a mini-boot camp.

For the upcoming workshop (Pipeline Workshop™ No. 8, October 18-19, 2017, at the Ponte Vedra Inn and Club, in Ponte Vedra Beach, Florida), we are highlighting five Velocity Accelerators®:

Epic Partnering™:  Builders attending Pipeline workshops™ consistently emphasize the need for stronger trade-partnering, better coordination, more cohesiveness, a more unified approach to managing the trade side of production.

They acknowledge the obvious:  they do not have the internal resources necessary to perform “the set of all specific actions” required to bring houses through the start-to-completion process, and they are completely dependent and reliant on skilled construction resources that are in short supply;  they understand that they can no longer dictate the terms of engagement.

Developing the business relationships that unify a builder’s value stream is a program of milestones and features, and it is a transformative process;  a program and a process.

Epic Partnering™ has profound implications on both the margin side and the velocity side of economic return.

Business Process Improvement (BPI):  The most basic, most fundamental proposition in the business of building homes is this:  the reason a builder exists is to make money;  the way a builder makes money is by delivering value – benefit in excess of cost – to its homebuyers and other stakeholders;  that value can only be delivered through the work that the building enterprise performs;  that work has to be performed in some manner of workflow, most commonly performed in processes.

Make money . . . by delivering extraordinary value . . . through the work a builder performs . . . in processes.

BPI is the front-end of a process of continuous improvement, one that fundamentally changes the perspective of workflow, and becomes the driving component of the operating model that forms a builder’s strategic value discipline.

As with Epic Partnering™, BPI improves both margin and velocity.

Critical Chain Project Management (CCPM):  Now more than sixty years old, the scheduling algorithm known as the Critical Path Method (CPM) was never intended to function in the environment of homebuilding production, which is project portfolio management with embedded and supporting processes;  CPM was never designed to function in environments in which velocity is important, where faster cycle time and higher inventory turns are critical drivers of business outcomes;  and, CPM is oblivious to the effect variation has on the scheduling of a production system.

CCPM is the leading edge – the future – of project scheduling for homebuilding;  it promises significant improvements in managing homebuilding production – faster cycle times, faster inventory turns;  enabling homebuilders to generate more Revenue, more Gross Income, with a planned, finite, and controlled amount of work-in-process and production capacity.

Unlike either Epic Partnering™ or Business Process Improvement,  Critical Chain is purely a velocity proposition.

Building Information Modeling (BIM):  Building Information Modeling (BIM) explores building design in a 3D model of the three spatial dimensions of width, height, and depth (some would also say time and cost), and links to multiple databases with information on costs, schedules, specifications, engineering data, and more.

BIM integrates, consolidates, and links information;  it makes data more accurate, useful, and manageable.

Much like Epic Partnering™ and BPI, BIM has implications for both the margin side and velocity side of ROA:  on the margin side, better, more collaborative designs with fewer design errors, more accurate job cost books, job budgets, and purchase orders;  on the velocity side, plans that are easier to build, more dependable job schedules, shorter cycle times, faster inventory turns.

Plus – a more satisfying homebuying experience and a higher quality product.

BIM holds the possibility of “making product 35% faster and 25% less costly to build”, according to Continuum AG’s Clark Ellis.

Yet, for all its promise to transform the homebuilding industry, BIM has had a shallow adoption curve, largely because implementing BIM requires too much determination and resolve, a different mental model, and a willingness to abandon past practices.

Which is where opportunity lives.

Open-Book Management and Team-Based Performance Compensation:  The efforts of a homebuilding company to improve operating performance and business outcomes will become far more difficult – if not fail – if it does not succeed first in creating a homebuilding team that works toward commonly-held and commonly understood business goals, versus being a collection of so-called teammates working toward individual goals.  What would be missing, is an underlying business logic that forms the necessary context for understanding everything else.

To become the kind of savvy, motivated, mutually-accountable homebuilding team required to compete effectively in the business world, everyone on the team has to learn the “business” of homebuilding, they have to understand their individual responsibilities as part of the overall team, and they have to understand what is at stake, individually and collectively.

That is the role of Open-Book Management.

It is not enough that teammates understand the business outcome that is at stake, they must each have a personal stake in that business outcome.

That is the role of performance compensation.

 

We like the balance between these five Velocity Accelerators®:  a blend of immediate, mid-term, and long-range initiatives that accelerate velocity, but also improve margins.

Come.  Participate.  Learn.

The next Pipeline workshop™ will be held at the Ponte Vedra Inn and Club, Ponte Vedra Beach, Florida, on October 18-19, 2017.  The cost is $875.00 per person;  for team pricing, inquire here (flgroves@saiconsulting.com)

Delivered by SAI Consulting and Continuum Advisory Group.  Sponsored by BUILDER and BuilderMT.

Details:  www.buildervelocity.com

 

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

Posted August 13, 2017 By Fletcher Groves

Any homebuilding team should be able to determine, for themselves, how attuned they are to the critical tasks of thriving on the velocity side of economic return.  To that end, we are willing to make the RB Builders: Lessons from the Pipeline© business case – the same business case used at every Pipeline workshop™ – available at no cost, to any builder that asks for it.

There are only two conditions:  (1) a builder has to state the intent of actually completing it;  (2) if a builder wants our methods and solutions, it has to share its results with us.

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

In keeping with the essence of Pipeline workshops™, this business case is difficult, but if you are up to the challenge, here is how RB Builders: Lessons from the Pipeline© opens, followed by the nature of the questions the interrelated business case exercises require you to consider:

 

“It is the first quarter of 2017.  RB Builders is aiming – yet again – to extend its reputation as a builder that thrives on both the margin and velocity sides of Return on Assets, by expanding into another new geographical market, via the late-2016 acquisition of a fourth existing homebuilding operation.

“Like previous years’ acquisitions, the newly-acquired division serves segments of the new home market deemed compatible with RB Builders’.  And – 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, to-date, from the standpoint of both margin and velocity.

“As with its predecessors, RB Builders believes that it has once again acquired a building operation with satisfactory land/lot positions.

“To date, RB Builders has completed the conversion to the enterprise management technology system and started the conversion of the business and operating processes;  RB Builders is confident that it can continue its track 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:  Nine years 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 essentially used four initiatives:  (1) a team-based performance compensation plan directed at achieving targeted results above a baseline related to a single business outcome, paid-out upon the achievement of a series of progressively-weighted milestones;  (2) a method of sharing numbers that produced full operational and financial transparency;  (3) accounting procedures that connected operating performance to business outcomes very effectively, via actionable data;  and (4) a focused process of continuous improvement, consisting of a prioritized series of consecutively-ordered initiatives, all with short durations aimed at achieving targeted, defined, measurable results.

“As a result of this program, RB Builders had made massive strides.

“During the ensuing five-year period (2008-2012), annual Revenue had grown from $50 million to more $121 million, an increase of almost 250%.  During the same period, the number of closings had increased more than 225%, from 200 houses per year to 453 houses per year.  Despite the margin pressure from increasing market share so dramatically, overall Gross Margin had actually increased slightly, from 22% to 24%;  as a result, RB Builders’ Gross Income had grown by more than 250%, from $11 million to almost $30 million.

“During this five-year period, Operating Expense had increased 30% (from $8.5 million to $11 million), far less than the same-period increase in Revenue.  As a result, RB Builder’s Net Income had risen from $2.5 million to $16.5 million, more than six times what it had been before the company began its transformation;  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.  In 2008, the average amount of work-in-process had been 100 houses under construction;  by the end of 2012, the company been able to reduce its average work-in-process to 80 houses under construction.  The reductions in cycle time and work-in-process had occurred despite more than doubling the annual number of closings.

“In 2008, RB Builders had targeted an inventory turn of 2.5x, which was actually an improvement from the preceding year;  in 2012, by keeping its work-in-process at 80 houses and closing 453 houses, RB Builders had been able to more than double its physical inventory turn, to 5.7x.

“In 2008, RB Builders turned the value of its assets two times;  in 2012, it turned the value of its assets almost five times.  Because it had managed to maintain 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 served to further increase Asset Turn – and ROIA – had those measures been restated to reflect the remaining assets.

“It had been a remarkable transformation.

“The three divisions that RB Builders had previously acquired have now met – or remain solidly on-track towards meeting – their own two-year plans for significantly 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 2016, RB Builders acquired this, its fourth homebuilding operation.  In its last year of independent operation, it had closed 48 houses, and generated $12 million in Revenue;  with $9.6 million in Cost of Sales now reflecting only its direct, variable costs, the operation had generated $2.4 million in Gross Income, producing a 20% Gross Margin.

“With its $1.8 million in Operating Expense now reflecting only its indirect, non-variable costs, the newly-acquired operation had produced $600,000 in Net Income, resulting in a 5% Net Margin.

“Since it carried an average work-in-process of 28 houses under construction throughout 2016, the division had a calculated cycle time of 210 days, despite job schedules that were typically 120 days;  48 closings and average work-in-process of 28 houses under construction meant the newly-acquired building operation turned its physical inventory 1.7 times in 2016.

“Adopting the policy of RB Builders, and moving all of its raw land holdings and developed lot inventory off of its balance sheet, and into subsidiaries, the newly-acquired building operation showed a restated average work-in-process of $3.85 million;  Revenue of $12 million gave it an asset turnover ratio of 3.1x.

“With its Net Margin of 5% and its restated asset turn of 3.1x, the new operation had achieved an ROIA of 15.5%.”

Here are the questions the interrelated business case exercises raise:

Q:  How will you address a mandate that your newly-acquired division more than double its annual closings 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 to improve both the margin and velocity sides of economic return – and calculate the ROI on your BIM investment?

Q:  How do you calculate your newly-acquired division’s breakeven points and rates, in both financial and unit (closings) terms, now changing as a result of your improved operating performance and economic outcomes? What accounting practices will calculating the breakeven part of Cost-Volume-Profit require?

Q:  How will you create a savvy, motivated, mutually-accountable homebuilding team? One that understands the business of homebuilding as much as it does the homebuilding business?  One in which every teammate has a significant financial stake in the outcome – in achieving targeted performance above a baseline in a specific business result?

Q:  How will you answer RB Builders’ contention that variation – as evidenced by your 2016 cycle time, and supported by other operating performance measures – is costing your newly-acquired division between $1.3 and $1.8 million in Net Income every year? Bearing in mind, of course, that in 2016, your division only had Net Income of $600,000.

Q:  How will your newly-acquired division adapt Epic Partnering™ (RB Builders’ proven program and process for creating partnering relationships and 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?

Q:  How will you address workflow as part of an overall Business Process Improvement initiative intended to remove non-value-adding work and make the remaining value-adding work flow faster, more evenly, more smoothly, with fewer mistakes and rework?

Q:  How will you use Critical Chain Project Management to change the work breakdown structure of your job schedules, in order to reduce cycle time to 96 days (from 120 days), while also assuring more reliable job completion dates?

Go ahead, request the business case;  it gives you every bit of information you need.  When you are finished, grade yourself.  Were you able to answer the questions?  Were you able to solve the problems?  After completing the RB Builders: Lessons from the Pipeline© business case, if you find unacceptable, let’s call it your “degree of attunement”, you should plan to come to this 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 October 18-19, 2017, at the Ponte Vedra Inn and Club, in Ponte Vedra Beach, Florida.

Cost is $875.00;  for team pricing, inquire here (flgroves@saiconsulting.com).

Delivered by SAI Consulting and Continuum Advisory Group.  Sponsored by BUILDER and BuilderMT.

Details:  www.buildervelocity.com

 

If you are attending the 2017 MiTek Builder Technology Summit, September 19-22, 2017, at the Naples Beach and Golf Hotel in Naples, Florida, and you want to learn more about Pipeline workshops™, come to the BuilderVelocity™: Thriving on the Velocity Side of Return on Assets® session in Session Group II on Thursday morning, 10:15 – 11:45 AM.

We plan to cover every aspect of what has become the most intense, demanding, interactive, and challenging homebuilding production management learning experience on the planet – the visual image of homebuilding production, connecting operating performance to business outcomes, production physics, the Pipeline game™, the current RB Builders: Lessons from the Pipeline© business case exercises, the Mental Models, the currently-featured Velocity Accelerators®, everything.

It will give you a very good idea of what a Pipeline workshop™ is all about, and whether it is right for you, and your team.

Come.  Participate.  Learn.

 

The next Pipeline workshop™ is October 18-19, 2017, at the Ponte Vedra Inn and Club, in Ponte Vedra Beach, Florida.  Cost is $875.00;  for team pricing, inquire here (flgroves@saiconsulting.com).

Sponsored by BUILDER and BuilderMT.

Details:  www.buildervelocity.com