Archive for October, 2021

(the second edition of The Pipeline: A Picture of Homebuilding Production© was published in January 2016)

Pascal and I are friends and colleagues, as he notes in the foreword that he graciously wrote for the first edition of 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 Lean Production SimplifiedAndy & Me, Getting the Right Things Done, and The Remedy;  he is a four-time winner of the Shingo Prize for Excellence.

“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.”

Next:  The Pipeline: A Picture of Homebuilding Production©, Second Edition:  What Others Have Said

 

The Pipeline: A Picture of Homebuilding Production©, Second Edition is available POD through the publisher’s bookstore, and from any of the main booksellers (amazon.com, barnesandnoble.com, or booksamillion.com).

virtualbookworm.com/collections/the-pipeline-a-picture-of-homebuilding-production

It is typically carried in-stock on amazon.com:  amazon.com/Pipeline/1621378047

 

(a second edition of The Pipeline: A Picture of Homebuilding Production© was published in January 2016)

Now in its second edition, 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 result is a deeper understanding of a production system, one with an enduring visual image, the elements of which are crafted to the specific conditions, requirements, and parameters of the homebuilding industry, together with the realization that improving performance on the velocity side of the ROA equation is the best path 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.  It is about using the tools that work for homebuilding production, without regard to the consulting religion from which they come.  It makes the connection between operating performance and business outcomes.

The Pipeline: A Picture of Homebuilding Production©, Second Edition uses a production simulator and business game known as the Pipeline game™ to demonstrate – to enable builders to experience – the principles and disciplines of homebuilding production;  the book uses resources and an operating statement aligned completely with that of a homebuilding enterprise.

The second edition explores new areas, such as giving an in-depth examination of both the advantages and challenges of vertical integration in the homebuilding supply chain, in terms of both operations and business outcomes.

Next:  The Pipeline: A Picture of Homebuilding Production, Second Edition©:  Foreword by Pascal Dennis

 

The Pipeline: A Picture of Homebuilding Production©, Second Edition is available POD through the publisher’s bookstore, and from any of the main booksellers (amazon.com, barnesandnoble.com, or booksamillion.com).

virtualbookworm.com/collections/the-pipeline-a-picture-of-homebuilding-production

It is typically carried in-stock on amazon.com:  amazon.com/Pipeline/1621378047

 

Good Process Design

Posted October 17, 2021 By Fletcher Groves

(published on Escape from Averageness® in September 2012;  updated and republished here)

For a quarter century, now going on three decades – since 1996  – we have been mapping business processes, helping clients document, redesign, and improve their business workflow.  Dozens of clients, served over decades;  for sure, in various vertical spaces, but our focus has always been on the homebuilding industry.

In that regard, when it comes to the documentation, analysis, measurement, design and redesign, improvement, and management of operating and business processes, SAI Consulting is the homebuilding industry’s leading expert.  We have done Business Process Improvement and Business Process Reengineering longer, and we have done more of it, than any other consulting firm serving the homebuilding industry.

Early-on, it became very apparent that the majority of enterprises (particularly, homebuilding enterprises) don’t come into BPI or BPR initiatives with a meaningful level of understanding regarding processes, let alone good process design.  So – from the very beginning – we have taken the time to prepare and provide process design guidelines for these engagements.  These process design guidelines are now in their seventh generation, and the revisions to these guidelines reflect the progression of our thinking on the design and management of business processes.

These guidelines reflect, as well, our inclination to incorporate process methodologies and tools that work, without regard to the process religion from which they came.  They also reflect our contention that the unique workflow found in homebuilding – unlike manufacturing and service industries – consists of project portfolio management – i.e., multi-project management – with embedded, supporting, and surrounding processes.

As we initially stated on Escape from Averageness®:  to a certain degree, workflow is workflow, process is process.  There are common principles of process design, and while each set of process guidelines is crafted with the needs of each client in mind, much of good process design tends to transcend industry classifications.

Even within the confines of a specific industry (in this case, homebuilding), specific clients will have specific circumstances and specific requirements;  conceding as much, however, substitute your own terms, definitions, and org structures, and see if these process mapping guidelines don’t make remarkable sense in the workflow world in which your own enterprise has to operate:

  • Start process design and redesign efforts from the desired future state of the process, and bring the current state to it. What does the new process have to be capable of doing?  How must it perform?  What are the prerequisites?  What are the necessary conditions?
  • Set specific performance requirements for the redesigned processes; make the connection between better process operating performance – shorter durations, faster inventory turns, higher productivity, more even-flow, better utilization – and the expected improvement in profitability and economic return.
  • Focus on the outcomes that satisfy homebuyers’ and other stakeholders’ requirements. Focus on outcomes that simplify the process, and eliminate the non-value-added activities – the waste, errors, redundancy, and bureaucracy – that have been built into, or have been allowed to creep into, the process.
  • Processes that are complex require a multitude of simple tasks to operate, but simple, elegant processes require a different approach. To make the new/redesigned process easier to manage, specify more complex tasks – sets of simple tasks previously handed-off between departments and positions – that can be performed by just one person.
  • Processes that are focused on specific product families produce better designs. Avoid one-size-fits-all processes – particularly on value delivery processes.  Those processes will be too complex, and will invariably result in compromised designs.
  • Place the authority and responsibility for decision-making with the teammates who actually perform the work, without imposing the requirement for unnecessary reviews and approvals.
  • Reduce the number of unnecessary reports, files, and documents in the system; standardize the documentation deemed essential (paper and digital).
  • Capture information one timeat its sourcepreserve it, and make it available for all future users – online, real-time, universally accessible.
  • Integrate as much of the management technology as possible, even if you have to build the Enterprise Resource Planning (ERP) application yourself.
  • Solve the root cause of the problem, don’t treat the symptoms. Eliminate the practice of reviewing and correcting errors;  replace it with a problem-solving method that prevents the errors from having occurred in the first place.  When problems do occur, stop the process, fix the problem, and implement counter-measures that will prevent the problem from reoccurring.
  • Build the necessary controls into the front-end of the process.
  • Eliminate process variation and uncertainty. Variation is not the same as waste, it is, in fact, worse;  it is more the result of unevenness, and denotes a lack of stability – the inability to produce a consistent result.

Production processes need stability, and variation causes instability.  Variation is far more damaging to a process than activity that simply does not add value.  If all a homebuilding company does is attack waste (in the form of errors, rework, redundancy, etc.) and fails to directly attack the variation that causes instability, it will have to live with a production system that has some combination of higher-than-necessary work-in-process, longer-than-necessary durations, or excess/unused production capacity.

  • Process design is only part of the battle – the loading and sequencing of work in the process is equally important. Not that it is the least bit desirable or acceptable, but a poorly-designed-but-well-managed process will outperform a well-designed-but-poorly-managed process every time.

Eliminate the disconnected, stop-and-start, hurry-up-and-wait, inventory-intense sequence of production that currently characterizes homebuilding, wherever you find it, and replace it with a system of even-flow production intended to:

  • Recognize the paradox between balanced capacity and balanced production, and treat even-flow production as an outcome, not a mechanism.
  • Maximize the rate of throughput (rate of completions/closings) generated with a planned, finite, and controlled level of inventory and production capacity.
  • Pull starts into the system at the rate of completions, versus pushing starts into the system at some arbitrary, predetermined rate, without regard to the pace of completions, and in disregard to production capacity. Again, the utilization of a production system is measured by the rate of completions that can be generated with a planned, finite, and controlled level of work-in-process.
  • Accept and understand that duration, throughput, and work-in-process have a common DNA; they impact one another in cause-and-effect relationships.
  • Standardize and simplify a process, before attempting to automate it.
  • Let the requirements of processes drive the other components of the operating model (i.e., systems, organizational structure, employee selection, etc.). Move from a vertical, functional organizational structure to a horizontal, team-based approach aligned with process workflow and the creation of value (benefit in excess of cost).
  • Although processes present a standardized approach to workflow that promotes consistency, evenness, and stability, those same processes need to support enterprise models that are adaptable, agile, and responsive.
  • Processes benefit from a systems approach to continuous improvement. The goal is not to improve the performance of the process – the goal is to continuously improve the performance of the overall production system in which it exists.  Expect most improvement in operational performance to come from improving performance on the system’s constraint, the resource with the most demand relative to its capacity.
  • Processes don’t perform work or deliver value – teammates working in the process do. Make the training, the performance measurement, the accountability, and (most importantly) the compensation structure reflect targeted, measurable performance requirements, both operational and financial.

Once again, those of you who know me, know that promoting the capability or expertise of SAI Consulting on Escape from Averageness® is not my intent.  However, offering guidelines is a form of advice, it is different than offering an opinion or viewpoint, and it carries with it a requirement that whoever is offering the advice actually knows what he is talking about.

In that regard, when it comes to the documentation, analysis, measurement, design and redesign, improvement, and management of operating and business processes, SAI Consulting is the homebuilding industry’s leading expert.  We have done it longer, and we have done more of it, than any other consulting firm.

It is our tour de force.

It is the area for which we are most recognized.  Virtually every consulting engagement we have ever accepted or been considered for, in-and-out of homebuilding, has dealt – in some way – with how a client should structure itself around its core-critical business processes.  And – we have provided this same insight and advice to others on hundreds of occasions.

We know what we are talking about.

For more information:  flgroves@saiconsulting.com

 

Pipeline Workshops™: Improvements to the Game

Posted October 10, 2021 By Fletcher Groves

“Pipeline games™ were a brilliant way to demonstrate and drive home the significance of cycle time improvements and improving trade partner efficiencies on ROA and Net Income.”  (Keith Porterfield, COO, Goodall Homes, Gallatin, TN)

“The Pipeline games™ were not only fun, they were super-effective in showing how unbalancing the production system, managing the constraint resource, and managing the right amount of WIP, creates predictable operational results and maximizes financial outcomes.  This workshop was really eye opening!”  (Charles Roberts, Providence Homes)

“Pipeline games™ are a very innovative way to demonstrate the critical nature and relationship between cycle time, inventory turn, margin, and return on assets.”  (Vishaal Gupta, President, Park Square Homes, Orlando, FL)

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

Simulating production principles is a big part of every Pipeline workshop™.  We hear, repeatedly, that the opportunity to simulate production in a progressive series of scenarios is what enables builders to actually “see” production, to see production principles in action.  Because it is both a production simulator and a business game, Pipeline games™ are what make Pipeline workshops™ so intense, so interactive, and so competitive.

Pipeline games™ have always been a tremendous tool for teaching both production and business principles, but we are never content.  We constantly improve them, introducing significant changes over the past five years that make them even more effective.

One of the earlier changes was to shorten the game, so that we could run more production scenarios in the same amount of time, and so that each operating decision became more consequential.  Another change, designed to make the game more realistic, was to have it depict the completely outsourced nature of homebuilding production, just as it currently exists.

That later change begs a deeper dive.

In the earliest version of the game, the resources that did the work reflected both capacity and the cost of that capacity;  the problem was, that arrangement more reflected a manufacturing operation than a homebuilding operation.  In order to realistically depict the current, outsourced nature of homebuilding production, capacity has to be separated from cost.

Why?  Because, the external resources that determine production capacity are a part of Cost of Sales (making them a direct, variable cost);  Cost of Sales is a measure of product cost, not capacity cost;  Operating Expense (the indirect, non-variable cost of internal resources) is what determines capacity cost.

Using the resources to reflect both capacity and cost required us to essentially disregard Revenue and Cost of Sales, and treat Throughput  (i.e., Gross Income, normally a residual) as Revenue;  again, that’s fine for depicting a manufacturing operation, but it is not a good depiction of a homebuilding operation.  In the improved version of the Pipeline game™, we restored Revenue and Cost of Sales to the equation, making Throughput (i.e., Gross Income) a residual.  In effect, we now account for the margin side of Return on Assets, not just the velocity side.

Because they do the work (not simply manage it), the external resources in a Pipeline game™ now define the production system’s capacity, and the cost of those resources is reflected in Cost of Sales, stipulated as a percentage of Revenue;  as it relates to Revenue, they are a direct, variable cost associated with the construction of a home.  Operating Expense is now an imposed cost, reflecting the budgeted cost of the internal capacity required to manage work-in-process;  that makes Operating Expense an indirect, non-variable cost, as it relates to Revenue (and the completions and closings that produce it).

This represents a significant stride in reconciling Revenue, Cost of Sales, Throughput, and Gross Income, making operating decisions easier to connect to financial outcomes.  The result is a production simulator and business game that is truly reflective of a homebuilding operation, with lessons that are now much easier for builders to understand.

This change continues to pay-off.  But – we don’t ever stop;  the Pipeline game™ keeps getting better and better.

Example?  At a recent Pipeline workshop™, we introduced a scenario that contrasts the current industry- accepted growth and operations strategy (a completely outsourced building model) with a radically different growth and operations strategy (a completely integrated building model), in order to explore the difference between a strategy based on a broader, shallower footprint and one based on a narrower, deeper footprint.

Come.  Participate.  Learn.

 

The next Pipeline workshop™ will be held October 14-15, 2021, at the Ponte Vedra Inn and Club, in Ponte Vedra Beach, Florida.  The cost is $895.00 per person.  Attendance is limited to 30 attendees.  For team pricing, inquire here (flgroves@saiconsulting.com).

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

For more details:  www.buildervelocity.com

 

“The absence of business logic is simply astounding.”

Posted October 2, 2021 By Fletcher Groves

(originally published on EFA® in February 2010 under the same title;  republished in April 2013, as part of our retrospective Above Average: The Best of Escape from Averageness®, 2009-2012;  updated and republished in advance of each Pipeline workshop™)

McKinsey and Company

It is mid-2012.  The intrepid, results-based consultant smiled and shook her head, with equal measures of amusement, incongruence, and disbelief.  It was yet another sobering reminder that RB Builders, early in this process, was capable of coming to bewildering conclusions, the latest of which centered around the company’s intentions for its team-based performance compensation plan.

The Gross Income Participation Pool – the GIPP – had been a prerequisite to her consulting firm agreeing to become involved in a client-consultant partnering arrangement with RB Builders in the first place, one of three stipulations, along with internal financial statements that reflected a variable costing approach, and the subordination of every existing initiative to the company’s new constraint-focused, rapid-results continuous improvement process.

The GIPP was new.  It was purposely designed to replace RB Builders’ longstanding-but-inconsistent practice of paying individual bonuses based on multiple job-related measures.  It consisted of a team-based approach to performance compensation focused on achievement related to a single business outcome;  in RB Builders’ case, that business outcome was Gross Income achieved above a specific baseline.

Under the GIPP, the baseline performance was referred to as the Gross Income Baseline, while the stretch-budgeted performance was dubbed the Gross Income Target.  The difference between the GI Baseline and the GI Target was referred to as the Gross Income Reserve.

The GI Reserve was to be paid out progressively, based on the achievement of a predetermined number of Gross Income goals, so-called Gross Income Milestones.  The aggregate teammate share of the GI Reserve was one-third of the GI Reserve, with the remaining two-thirds allocated evenly between distributions to owners and retained earnings.

Now, however, the GIPP was getting push-back from a recently-hired Regional Vice President, who was saying the plan should be scrapped.

“We might not even achieve these goals, and if we did achieve them, there are more important uses for the funds”, he said.

The intrepid, results-based consultant’s thought to herself, “The Gross Income Participation Pool is an established prerequisite.  This guy’s assertion doesn’t have any merit, but even if it did, it is too late in the planning cycle to consider changing it, let alone canceling and replacing it.”

She was having none of it.

“Where did you get this stupid idea?”, she asked.

“People get paid salaries to do their jobs, and we bonus certain positions”, he replied.  “I need more people, not higher-paid people.”

The intrepid, results-based consultant stared at the CEO, her impassive expression nevertheless clearly communicating her unspoken thought:  “Where did you find this guy?”

She turned her attention back to the Regional VP.

“Let me get this straight.  You are concerned that your division will, what?  Be unable to meet its debt service obligations, or find land, or hire more people, if it rewards performance above its baseline?”, she asked, rhetorically.  “Really?  Where is the money supposed to come from?

“The GIPP will not have paid out anything, unless there is a reserve created by performance that exceeds the baseline.  You do realize that the GIPP is completely self-funding, that it does not cost the division or RB Builders’ owners one-red-cent?

“You do understand that, right?

“For one thing, all of the land and building lots acquired are kept off-balance sheet, so that is not a concern of yours”, she continued.  “And – given that RB Builders places strict limitations and controls on the level of work-in-process, and on any increase in non-variable expenses – is there any imaginable scenario under which additional Gross Income will result in less cash flow?

She stared down the Regional Vice President.  “I didn’t think so.”

“On baseline alone, RB Builders is profitable, operating above breakeven, correct?”, she asked, without waiting for the answer.  “So – is there any imaginable scenario under which every penny of that additional Gross Income will not drop straight to the division bottom-line?  Where it can be utilized for – oh, I don’t know, let’s say – distributed to teammates and owners before it became retained earnings?

“I can understand being prudent with important decisions;  at some point, there will be an economic downturn, and we have to be prepared for it.

“I can understand increased diligence in determining a baseline that reflects current reality.  I can understand having a more progressive structure to the payouts, so that each successive milestone is worth more.  I can understand adjusting the distribution of the reserve between teammates, owners, and retained earnings – slightly – in order to provide more money for other uses.

“I can understand – but not agree with – the choice of a supposedly-safer outcome, like Net Income.

“But, to deny yourselves – you, your teammates, your owners – the opportunity and motivation to do better?  The opportunity to preserve your shared livelihoods?  To secure your collective futures?  That, I do not understand.  That, I will not accept.

“The absence of business logic is simply astounding.”

 

Come.  Participate.  Learn.

Open-Book Management and Team-Based Performance Compensation is one of the three Velocity Accelerators® highlighted (together with Critical Chain Project Management and Business Process Improvement) at the next Pipeline workshop™, October 14-15, 2021, at the Ponte Vedra Inn and Club, in Ponte Vedra Beach, Florida.

The cost is $895.00 per person.  Attendance is limited to only 30 attendees.  For team pricing, inquire here (flgroves@saiconsulting.com).

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

For more details:  www.buildervelocity.com