Archive for December, 2017

Pipeline Workshops™: Right for You?

Posted December 10, 2017 By Fletcher Groves

Homebuilding production is a system, and it has to be managed as a system;  in order to be managed, first it must be understood.  That type of ordered, process-centric, capacity-focused understanding – that way of thinking – is not the homebuilding industry’s natural inclination;  it clashes with the deal-driven, product-centric, margin-focused mentality that pervades the industry.

That understanding is now crucial, because in the mega-challenging environment confronting an industry that has survived the worst economic and housing recession in three-quarters of a century, it is no longer a choice between achieving higher margin or higher velocity.  It is the requirement to achieve higher margins at higher velocities.

Meeting that requirement is what creates sustainable competitive separation;  sustainable competitive separation is what determines survival.

Pipeline workshops™ are a two-day immersion into production physics – into the principles and disciplines that enable homebuilders to thrive on the velocity side of Return on Assets, to thrive on the velocity side of economic return®.  They transfer in-depth knowledge and create an intuitive, instinctive understanding of production principles and disciplines, focused exclusively on homebuilding operations.  They are not a lecture;  the material is comprehensive, the learning is intense, and the format is interactive and competitive;  they are size-limited.

The comprehensiveness, intensity, interaction, and competitiveness found in a Pipeline workshop™ flows from two unique elements:  (1) RB Builders: Lessons from the Pipeline© is a state-of-the-art business case;  (2) the Pipeline game™ is 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 outcomes – outcomes that are diagnosed after each game, so that the connection between operating decisions and business outcomes is embedded, the principles and disciplines ingrained.

What do you acquire at a Pipeline workshop™?  

•  A 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 business outcome measures of profitability and economic return;

  A set of mental models – a way of thinking about size, growth, capacity, cost of variation, and other critical areas – that define a homebuilding production system, provide a systemic approach to solving production problems and managing finite production capacity, and deliver a blended approach to process and project portfolio management that addresses the unique attributes and parameters of homebuilding production;   

•  A set of velocity accelerators – Pipeline™ tactics, techniques, and practices focused on the areas of trade partnering, job scheduling, process improvement, building information modeling, and open-book management and performance compensation – that shorten schedules, reduce cycle times, increase throughput, and control 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 interactions with – 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, CFOs
  • Division and Regional Managers
  • Vice Presidents of Operations and Construction
  • Vice Presidents of Sales and Marketing
  • Design, Estimating, and Purchasing Managers
  • Production Managers
  • Construction Managers

Pipeline workshops™ are also an excellent experience for the equivalent positions with building trade partners – for the manufacturers, distributors, suppliers, and subcontractors who must interact with builders in the value stream.

Come.  Participate.  Learn.

 

The next Pipeline workshop™ will be held at the Ponte Vedra Inn and Club, Ponte Vedra Beach, Florida, on February 28 – March 1, 2018.  The cost is $895.00 per person;  the cost during early registration, extended through December 31, 2017, is $750.00;  for team pricing, inquire here (flgroves@saiconsulting.com).

Sponsored by BUILDER, BuilderMT, and Specitup.

For more details:  www.buildervelocity.com

 

Homebuilding is an industry that leverages equity with debt, therefore, some version of Return on Assets is the best measure of a homebuilding enterprise’s economic return.  The most useful version of ROA is the DuPont identity, which expands economic return into two components:

Margin (Return on Sales) and Velocity (Asset Turn).

From an operational perspective, the vast majority of assets on a builder’s balance sheet ought to be houses in some stage of construction, particularly when raw land and developed lot inventory is held off-balance sheet;  which means, when we calculate Return on Invested  Assets, we can reasonably associate Asset Turnover (financial term) with Inventory Turn (operating term).

The point is to thrive in this business, not just survive in it.  To do that, a builder has to do well on both the margin side and the velocity side of ROA.  That understanding fundamentally proposes two questions:  (1) How much can I make on every house?  (2) How many houses can I build with a planned, finite, and controlled amount of inventory and production capacity?

As a builder, consider this scenario:  You have a competitor that has exactly the same work-in-process, overhead, working capital requirements, borrowing capacity, and risk profile.

If you generate a Gross Margin of 24% and turn your inventory twice a year, you will be outperformed by this competitor that generates a Gross Margin of only 18%, but turns its inventory four times a year;  you will be outperformed in terms of Revenue, outperformed in terms of closings;  you will be out-performed – better than two-to-one – in terms of Net Income and Return on Assets.

You will struggle to compete;  in fact, you will struggle to survive.

It is the picture of a slow, marginally-productive homebuilding company versus a fast, highly-productive homebuilding company;  your competitor generates 85% higher Revenue and 40% more Gross Income than you do, and does it 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 – the one with the 18% Gross Margin and a 4x turn – produces almost the same ROA as you do 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, remember this:  in this scenario, your competitor is exactly the same size as you, when the real measure of size is the amount of work-in-process you each have to carry.

What creates competitive separation – the distance between competitive position?  It lies in doing the important-yet-difficult things.  The demands of higher productivity are so tough, require so much rigor, so much discipline, so much resolve, that most builders won’t even go there.

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, to thrive on the velocity side of Return on Assets.

Come.  Participate.  Learn.

 

The next Pipeline workshop™ will be held at the Ponte Vedra Inn and Club, Ponte Vedra Beach, Florida, on February 28 – March 1, 2018.  The cost is $895.00 per person;  the cost during early registration, open through December 31, 2017, is $750.00;  for team pricing, inquire here (flgroves@saiconsulting.com).

Sponsored by BUILDER, BuilderMT, and Specitup.

For more details:  www.buildervelocity.com