Pipeline Workshops: Thriving on the Velocity Side of Return on Assets

The homebuilding industry that has emerged from the worst recession in three-quarters of a century is a different world.  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 has 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.

Does the scenario of 180 day cycle time vs. 90 day cycle time present too stark a contrast?  Then, 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.

Although these scenarios present clear differences in economic outcomes, all three homebuilding companies are exactly the same size, when the real measure of size is the amount of work-in-process they each have to carry;  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 October 15-16, 2014.  Cost is $795.00.  Early registration, open through August 15, 2014, is $645.00.

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

For more details:  www.builderevelocity.com