Archive for August, 2020

Pipeline Workshops™: What’s your Production IQ®?

Posted August 29, 2020 By Fletcher Groves

Remove financial leverage (the equity multiplier) from the formula from Return on Assets, and economic return becomes a function of profitability (Return on Sales) and operating efficiency (Asset Turnover).

That is the fundamental understanding that emerges from the DuPont identity, regarding Return on Assets.  Which means that economic return is margin x velocity, which then raises two questions:  (1) How much do I make on every house I build?  (2) How many houses can I build with the capacity I have?

It is a mutual, co-equal, dependent relationship.

Is margin proficiency necessary?  Yes.  Is it sufficient?  No.  Does superior margin hold-forth the possibility of achieving any degree of sustainable competitive separation?  Absolutely not.

We’re not alone in this assessment:

“ . . . [asset] turnover is just as important as profit margin.”  Barron’s Accounting Handbook (Siegel, Shim), 1990, 1997, p. 150.

“ . . . [improving] inventory turnover . . . increases asset velocity, one of the most under-appreciated components of making money . . . higher velocity improves productivity and reduces working capital.  It also improves cash flow, the life-blood of any business.”  Execution: The Discipline of Getting Things Done (Bossidy, Charan, 2002, p. 17)

Those facts and admonishments notwithstanding, in the homebuilding industry, action on the margin side of Return on Assets will always overshadow action on the velocity side of ROA.

Pipeline workshops™ are aimed at changing that paradigm.

The real motivation to attend a Pipeline workshop™ starts with the willingness to acknowledge – and a desire to remedy – what amounts to a profound lack of knowledge regarding production principles and disciplines.

Let the meaning of the last part of that statement linger for a moment:

In the homebuilding industry, there is a profound lack of knowledge regarding the operation and management of production systems.

Disagree?  Think you know your stuff?  Really?  Prove it.  Take the test.

  1. If a homebuilding production system is a pipeline, what determines the size, capacity, length, and cost of the pipe? What controls the flow?
  2. Is even-flow production a mechanism or an outcome?
  3. What is the best measure of size for a homebuilding company? revenue  b. number of employees  c. houses under construction  d. annual closings
  4. What are the terms for the three activities that describe “what happens to money” in a homebuilding business, terms which can be used to express and link the formulae for operating performance (productivity, cycle time, and inventory turn) to the equations for financial performance (Net Income and Return on Assets)? What do those activities represent?
  5. What type of workflow best describes homebuilding? Is it process management?  Is it project management?  Is it a combination of both?  If it is a combination, which element does it favor?
  6. True or False: A production system that unbalances capacity across the resources that perform the work does a better job of optimizing capacity utilization than a production system that balances capacity across those resources.
  7. In what three ways will a production system protect itself from variation and uncertainty?
  8. In scheduling a portfolio of jobs, which algorithm considers both task dependency and resource contention? Critical Path or Critical Chain?
  9. Calculating the cycle time of a production system requires knowledge of two operational measures. What are they?  Determining the level of necessary work-in-process requires knowledge of what operational measures?  Projecting the rate of periodic closings requires knowledge of what two operational measures?
  10. True or False: Building reasonable safety into task durations ensures a high percentage of on-time completions.
  11. What measure of operating performance is the reciprocal of cycle time?
  12. Lean Production views homebuilding as a build-to-order process. How does Lean recommend selecting a resource to serve as the process’ pacemaker?
  13. What is the difference between measured cycle time and calculated cycle time? What is the best use for each?
  14. What is the true cost of variation in a production system? What is typically mistaken as the cost of variation?
  15. What three human behaviors consume the time safety intentionally built into a job schedule?
  16. How does the matrix for managing starts in a “push” release system differ from the same matrix in a “pull” release system?
  17. As a matter of standard deviation, increasing the likelihood – the assurance – that a task will finish on-time, from a 50% probability to a 95% probability, will cause the duration of the task to increase by a factor of what? What is the multiplier?  In statistical terms, how many standard deviations does this factor represent?
  18. Is trade partnering considered a program or a process?
  19. True or False: The NAHB Chart of Accounts Income Statement prohibits a builder from calculating a breakeven point and a breakeven rate.
  20. What is the difference between velocity and speed?

(answers are at the bottom of the post)

We know, just a quiz.  Like any quiz, the questions represent a very small portion of the operating and business knowledge required to effectively manage homebuilding production, increase operating performance, generate higher Net Income, and improve Return on Assets.

Every homebuilding company has to determine how it will manage production within a specific context, within parameters that include its market, its product mix, its choice of an information/management technology system, its financial situation.

But, the ability to manage production starts with an understanding of its underlying principles and disciplines.

It starts with what you learn in a Pipeline workshop™.

Come.  Participate.  Learn.

 

The next Pipeline workshop™ will be held October 21-22, 2020, at the Ponte Vedra Inn and Club, in Ponte Vedra Beach, Florida.  The cost is $895.00 per person;  for team pricing, inquire here (flgroves@saiconsulting.com).

Delivered by SAI Consulting.

Sponsored by Specitup and Simpson Strong-Tie.

Details:  www.buildervelocity.com

 

Answers: 

(1) size is the amount of work-in-process, capacity is the rate of throughput (with a planned, finite, and controlled amount of work-in-process), length is cycle time, cost is all of the indirect, non-variable expenses associated with overhead, flow is controlled by the valve that allows starts to occur at the rate of closings;  (2) even-flow production is an outcome, not a mechanism;  (3) c: houses under construction;  (4) money generated through sales is called Throughput, money invested in whatever will be turned into Throughput is known as Inventory or Investment, and money spent turning Inventory into Throughput is called Operating Expense;  (5) homebuilding is multi-project (project portfolio) management with embedded and supporting processes;  (6) True;  (7) higher work-in-process, longer duration, or more capacity;  (8) Critical Chain;  (9) work-in-process and closings, expressed in units, cycle time expressed in days;  if two are known, the third can be calculated;  (10) False;  (11) inventory turn;  (12) Lean recommends using the most capacity-constrained resource as the pacemaker;  (13) measured cycle time is the average (mean) duration of a series of jobs;  calculated cycle time reflects the relationship between the inventory (work-in-process) a production system carries and the closings (throughput) it produces;  measured cycle time is about forensics, calculated cycle time is about the system;  (14) the true cost of variation in a production system is not wasted or excessive cost, it is the Contribution (Gross Income) from every house that was not built and closed because of variation in the system, Gross Income that would have dropped straight to the bottom-line as Net Income;  (15) procrastination (student syndrome), expand to whatever time is allowed (Parkinson’s Law), multi-tasking;  (16) the start matrix in a push system determines both the order and rate of starts, whereas in a pull system, the start matrix only determines the order of starts (the rate of starts is governed by the rate of closings);  (17) a factor of 1.64 (reciprocal .61), meaning that four out of every 10 days in the job schedule is padding (safety) intended to assure on-time completion of every task, and, therefore, the on-time completion of the job;  two standard deviations;  (18) establishing epic relationships with trade partners is both a program and a process;  (19) True;  (20) velocity is a vector measure;  it is speed in a specific direction;  velocity is targeted, purposeful speed.

 

Pipeline workshops™ are an intense, interactive, size-limited immersion into the principles and disciplines that drive homebuilding production.

Over the seven consecutive years they have been offered, we have made a number of additions and changes that improve the learning that Pipeline workshops™ deliver, notably the RB Builders: Lessons from the Pipeline© business case, with its challenging set of problem-solving exercises, several of which deal with another component we have added, what we call the Velocity Accelerators®.

Nevertheless, most attendees and observers will still tell you that the most compelling part of a Pipeline workshop™ is the Pipeline game™, a progression of production scenarios that also produce business outcomes;  Pipeline games™ are a production simulator, played by attendees grouped into teams, that covers both the home building business and the business of building homes.

It is the same Pipeline game™ we have used at Housing Leadership (now Builder 100) Summits, at CertainTeed Builder Advisory Groups, with NAHB Builder 20 Groups, at Pipeline workshops™ held privately for larger builders, and at other industry gatherings.

Pipeline Games™ reinforce the production principles taught in a Pipeline workshop™, such as:  (1) the effect of variation on a production system, (2) pull scheduling according to the capacity of a constraint resource, and (3) the importance of connecting operating decisions – made on matters like flow (of and between sales, starts, and completions), cycle time, capacity utilization, and the level of workinprocess – to the critical business outcomes of profitability and return on assets.

You could look at the results from any previous workshop.  The results never lie.  Consider this set of results.  In every category – from Revenue, to WIP levels, to Inventory Turns, to Cycle Time, to Net Income, to Return on Invested Assets – the teams made remarkable progress towards targeted performance, often exceeding expectations.

Look at the results, and you will see something else:  the teams rarely started out that way.

The game has changed, so the metrics have changed.  And, you clearly have to play the Pipeline game™ – see the measures and calculate the results for yourself – in order to fully comprehend what the axis values mean;  instead, focus on the performance trends (y-axis), as the games in this workshop progressed (x-axis).

This was Revenue . . . higher . . .

This was inventory turn . . . faster . . .

This was cycle time, expressed in days . . . shorter . . .

This was Net Income Margin . . . better . . .

This was Return on Assets, a reflection of its co-equal components:  Net Income Margin (margin) and inventory turn (velocity) . . . higher . . .

After the initial shock of shattered instincts, every metric was in precisely the direction you would want, precisely the direction you would expect, if the underlying production principles are true, if those principles are being applied, and if real progress is being made.

Like most of the builders attending a Pipeline workshop™, the builders attending this workshop clearly learned from their participation.

They learned the principles and disciplines of homebuilding production.

Pipeline games™ teach builders to “see” production;  they simulate the environment – fast-paced, rapidly-changing, filled with uncertainty, risk, and variation – in which homebuilding production decisions must be made.  It is learning based on experience and action, not lectures.

Pipeline games™ compress the learning curve.

In a Pipeline workshop™, the progression of the games mirrors the progression of the learning.  In the book that gave rise to the workshops (The Pipeline: A Picture of Homebuilding Production, Second Edition©), this is how they were described:

“Change is a necessary condition to any improvement effort, but change is difficult, disruptive, time-consuming, and costly;  the effort can fail to produce the desired – the intended – result.  Learning needs to occur without so much cost, disruption, and risk.  Managing production and improving operating and financial performance becomes intuitive and simple, but there is much to understand.  It is counter to what is taught, therefore, difficult to grasp;  it must be learned, and that is harsh when it occurs at the cost of real operating performance and actual business outcomes.”

Come.  Participate.  Learn.

 

The next Pipeline workshop™ will be held October 21-22, 2020 at the Ponte Vedra Inn and Club, Ponte Vedra Beach, Florida.  The cost is $895.00 per person;  the cost during early registration, open through August 31, 2020, is $750.00;  for team pricing, ask flgroves@saiconsulting.com

Delivered by SAI Consulting.

Sponsored by Specitup and Simpson Strong-Tie.

Details:  www.buildervelocity.com

 

Pipeline Workshops™: Disruptive Learning

Posted August 16, 2020 By Fletcher Groves

“The concept of production building being a ‘pipeline’, along with the simple and straight-forward concepts discussed in this seminar, made this one of the most eye-opening experiences I have ever had when it comes to learning about production building.”  (Patrick Bukszar, Dir. Construction Services, Essex Homes, Lexington, SC)

“The Pipeline workshop™ was an eye-opening experience.  I took away invaluable insight on what it takes to operate a profitable homebuilding company.”   (Daniel Hopkins, Director of Purchasing/Estimating, Jeff Benton Homes, Huntsville, AL)

“I walked away with a new perspective on making returns in residential homebuilding that challenged the models and assumptions I have worked under.”  (Mark Carter, Operations Manager, Drees Homes, Jacksonville, FL)

“It was quite intense, challenging, and not for the intellectually lazy”. (Scott Sedam, President, TrueNorth Development, South Lyon, MI)

Our intent in delivering a Pipeline workshop™ – plainly and simply – is to open builders’ eyes, open them wider than they have ever been opened, and to make the learning as disruptive as possible to conventional, long-accepted ways of thinking.

We don’t want to just inform their thinking;  we want to reform it – and to re-form it.  We want to change their thinking about homebuilding production, and, in so doing, rebuild it as a new understanding of homebuilding production.

To that end, Pipeline workshops™ use two unique tools:

Pipeline games™ are both a production simulator and a business game, and they are largely what make Pipeline workshops™ so intense, so interactive, so competitive, so unique, so worthwhile.  Already the best production simulator in the business (and the only one of its kind), we have made the Pipeline game™ even better over the past seven years, by getting to results faster, by giving it an income/operating statement that looks exactly like a homebuilding company, comparing integrated and outsourced building models, and more.

RB Builders: Lessons from the Pipeline© is an MBA-level business case developed specifically for Pipeline workshops™.  It presents a set of problems related to a very realistic homebuilding operation, problems that attendees are required to solve, as a team, in real time;  it is a test that challenges their knowledge and understanding of production and business principles.

Pipeline games™ and the RB Builders: Lessons from the Pipeline© business case are the type of tools that make what was already known for its unique, engaging, and challenging format a much sharper learning experience.

Pipeline workshops™:  creating a visual image of homebuilding production;  making the connection between operating decisions and the business outcomes those decisions drive;  ushering in a new way of systems-oriented thinking – a paradigm shift – towards solving core problems, managing constrained capacity, dealing with variation and uncertainty, and managing homebuilding production as the specific and particular workflow that it is;  emphasizing the actions that enable builders to thrive on the velocity side of Return on Assets.

Come.  Participate.  Learn.

 

The next Pipeline workshop™ will be held October 21-22, 2020, at the Ponte Vedra Inn and Club, in Ponte Vedra Beach, Florida.  The cost is $895.00 per person;  the cost during early registration, open through August 31, 2020, is $750.00;  for team pricing, inquire here: (flgroves@saiconsulting.com).

Developed and delivered by SAI Consulting.  Sponsored by Specitup and Simpson Strong-Tie.

For more details:  www.buildervelo.comcity 

 

Pipeline Workshops™: Right for You?

Posted August 8, 2020 By Fletcher Groves

Homebuilding production is a system.  It has to be managed as a system.  In order to be managed as a system, it must first be understood as a system.

That type of ordered, process-centric, capacity-focused manner 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.

Right now – and going forward – that understanding is crucial, because in an industry continuing to face challenges, old and new, long-term and short-term, less than a decade after the end of the worst economic and housing recession in three-quarters of a century, the way forward cannot continue to be a choice between two components of economic return;  the future path cannot be a choice between achieving higher margin or achieving higher velocity.

It cannot be one-or-the-other.  It cannot be a tradeoff between better competitive performance sought in one component and worse competitive performance accepted in the other component.

No.  Survival is now an imposed, mandated requirement to achieve to achieve both higher margins and higher velocity, and – if you want to put the game out-of-reach – to achieve much higher margins at much higher velocities.

Meeting that requirement – achieving that outcome – is the only path to creating sustainable competitive separation;  make no mistake, the ability to achieve 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, perceptive understanding of production principles and disciplines, focused exclusively on homebuilding operations.

It is an understanding of homebuilding production that becomes acquired behavior, that becomes innate, ingrained, second nature, visceral.

The material is comprehensive; the learning is intense;  the format is interactive and competitive.  These workshops are size-limited.  The comprehensiveness, intensity, interaction, and competitiveness flows from two unique elements:

(1) RB Builders: Lessons from the Pipeline© is an MBA-level business case pertaining to homebuilding production and business management;

(2) the Pipeline game™ is both a business game and a production simulator, a progressive series of production scenarios that reflect homebuilding production in the real business world, in an environment of variation and uncertainty, where operating decisions result in economic outcomes, with those results diagnosed after each game, so that the connection between operating decisions and business outcomes is embedded, the principles and disciplines ingrained.

What do you take away from a Pipeline workshop™?  

  • A visual image of a homebuilding production system – its purpose, its size, its cost, its length, its capacity;
  • An understanding of how operating decisions drive business outcomes, and how the measures of operating performance connect to the measures of business performance; 
  • A set of mental models – a way of thinking about size, growth, capacity, even-flow, cost of variation, and other critical areas that define a homebuilding production system, that provides a systemic approach to solving production problems and managing finite production capacity, that delivers a blended approach to managing the unique attributes and parameters of homebuilding production; 
  • A set of velocity accelerators – deeper dives into Pipeline™ methods and practices that shorten schedules, reduce cycle times, produce higher quality with less waste, and achieve higher throughput with a planned, finite, and controlled amount of capacity and 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 – a production system at some level of a homebuilding enterprise.

Pipeline workshops™ are for anyone – and everyone – who must understand/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 October 21-22, 2020.  The cost is $895.00 per person;  the cost during early registration, open through August 31, 2020, is $750.00;  for team pricing, contact flgroves@saiconsulting.com

Delivered by SAI Consulting.  Sponsored by Specitup and Simpson Strong-Tie.

For more details:  www.buildervelocity.com

 

Pipeline workshops™ are now completing their seventh consecutive year as the most intense, demanding, interactive, and challenging homebuilding production management learning experience on the planet.

Here, in their own words, just a few more comments from builders and industry experts who have attended one or more of them:

“The Pipeline Workshop™ is one of the best illustrators of combining the business operating performance measures with the reality of the construction world.”  (Dennis Shriver, President. Hearthside Homes, Kansas City, MO)

“I would recommend the Pipeline workshop™ to any production builder wanting to gain a better understanding about their company’s own “pipeline”.  It will help you understand the effects of how/how much/when/what rate you feed work to your construction people.  Understanding what our cycle time truly is helped us to focus on improvements needed to our starts system and removing constraints from our pipeline.  The learning tools used are practical, visual and effective in making the principals clear.”  (Bob Anderson, Vice President – Operations, Stylecraft Builders, College Station, TX)

“The Pipeline Workshop™ was an excellent way of teaching and illustrating the benefits of reducing cycle time and work in progress, so that we ultimately increase our Net Income and Return on Assets.  This process has us abandon our practice of trades multi-tasking our jobs,  giving our trades  maximum days to finish a job and constantly update our cycle time.  By managing to the completion date with a buffer, we have a greater chance of reducing cycle time.  With this new process,  we will need to be prepared to have trades jump to our jobs when they are ready for the next resource.  Ultimately, the future of homebuilding will include focusing on controlling WIP, lowering cycle time, and managing to the completion date.”  (Lise Anzelone, Regional Director of Sales, HHHunt Homes, Blacksburg, VA)

“Attending the Pipeline Workshop™ . . . thoroughly enhanced my perception of how WIP and CT can affect a production builder.  Using the Pipeline game™ to shift the mentality, [from] pushing homes into production to pulling them through the pipeline, was fun and eye-opening.”  (Josh Hoot, Director of Construction, Neal Communities, Sarasota, FL)

“While knowing the homebuilding industry is slower to adopt and grasp the usefulness of technology and integrated systems management, the Pipeline Workshop™ really helped me to understand on a deeper level HOW the right management applications and a truly collaborative system across the entire supply chain, along with internal departmental transparency, saves gross amounts of overhead and truly addresses [and] solves the gaps that manual ‘old school’ processes simply cannot.  As well, working through the Pipeline games™ gave me a real picture of how variability and constraints, when acknowledged, managed, and leveraged, while counterintuitive, actually gives homebuilders a means to optimize their organizations.”  (Crystal Wolverton, Business Development, Hyphen Solutions, Addison, TX)

“You think you have a good handle on the overall flow of your homebuilding operation, until you have your eyes opened by the instant result of changing workflow.  Realizing what happens to your cash flow and profit margin when optimizing productivity.  What a great tool!”  (Mark Johns, Vice President – Purchasing, CalAtlantic Homes, Jacksonville, FL)

“The Pipeline Game™ is a great tool requiring the players to put into practice the principles taught in the workshop.  It’s a hands-on exercise that requires you to think, consider, and review the results of Critical Path versus Critical Chain.”  (Lisa Ramsey, Consultant, Mark Systems, Mt. Holly, NJ)

“I thoroughly enjoyed the workshop.  It awakened concepts that have been dormant in my brain since I left manufacturing 15 years ago.  I’m very excited that our team has embraced “Pipeline” with so much energy.  I truly believe it will separate us from our competition and provide a roadmap for sustainable success.”  (Rob Boyer, Division Manager, Logan Homes, Belville, NC)

“The Velocity Accelerators presented in the Pipeline workshop™ are something I can take back and implement immediately.  Digging deep into these strategies with a room full of peers from multiple builders and specialty areas helped me to see the parallels we all experience in our day-to-day and to come up with some tangible focus points that we can use to improve current and future operations within our own teams and across our business to truly give us a competitive advantage.”  (Susan Williams, H1 Director of Sales, HHHunt Homes, Blacksburg, VA)

“[The Pipeline game™ was] fantastic.  A force multiplier to the seminar.”  (Todd Schunk, Construction Manager, CalAtlantic Homes, Jacksonville, FL)

“This workshop is a must for any construction business who is desiring to be more efficient and effective.  The practical applications are easily understood and implementable at any level of production.  Great tool for any team.”  (Jason Reynolds, Production Manager, Arbor Builders, Bend, OR)

“If you are a home builder looking to streamline……this seminar will give you all the tools to do so.  You will be challenged to think about how to overcome your production constraints and forced to think about what’s causing them.”  (PJ Kelly, Sales Manager, Logan Homes, Belville, NC)

“I found the Pipeline workshop™ eye-opening to concepts of homebuilding management that no one else is talking about.  Any homebuilding operation that is able to use these strategies will no doubt be more profitable and less chaotic.”  (Charlie Barber, Purchasing Manager, Essex Homes, Lexington, SC)

“[the] Pipeline Game™ truly connected the dots.  A remarkably creative tool.”  (David Nielsen, Division President, Cole West Homes, Washington, UT)

“Great workshop!  It forces you to think about the business side of homebuilding.  Too often, we get stuck in the details of each home and miss opportunities to improve the overall bottom line.”  (Brett Smith, Vice President – Operations, Hearthside Homes, Kansas City, MO)

“This is my second attendance to the Pipeline Workshops™.  All I can simply say is WOW!  Fletcher and his team strive to improve the workshops and make [them] even more relevant.  I especially enjoyed playing the Pipeline Game™ again, and learning about [the] Velocity Accelerators®.  I look forward to attending in the future!”  (Carlos Alvarez, President, Alvarez Homes, Baton Rouge, LA)

“Very beneficial information to help us bring back concepts to our business that help spur maximum efficiency and profitability.  The beneficial concepts mixed with an interactive learning environment create a great experience that is well-worth the investment.”  (Patrick McNair, Senior Financial Analyst, Essex Homes, Lexington, SC)

“This educational experience was extremely beneficial.  I feel that I have a much better understanding as to how WIP and cycle time can impact our company.  This knowledge and understanding will be extremely beneficial when explaining to our production crew and contractors the importance of reducing cycle time.  Thank you all again for everything!”  (Justin Cullivan, H1 Area Builder Manager, HHHunt Homes, Blacksburg, VA)

Come.  Participate.  Learn.

 

The next Pipeline workshop™ will be held October 21-22, 2020, at the Ponte Vedra Inn and Club, in Ponte Vedra Beach, Florida.  The cost is $895.00;  the cost during early registration, open through August 31, 2020, is $750.00;  for team pricing, inquire here:  (flgroves@saiconsulting.com).

Delivered by SAI Consulting.  Sponsored by Specitup and Simpson Strong-Tie.

For more details:  www.buildervelocity.com