Pipeline Workshops™: Improvements to the Game™

“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 the learning at every Pipeline workshop™.  We repeatedly hear from attending builders that the opportunity to simulate production in a progressive series of scenarios is what them to actually “see” production, to see the principles and disciplines of production in action.

And, because it is both a production simulator and a business game, the Pipeline game™ is what makes 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 have continuously improved them, introducing significant changes over the past five years that make the games 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 make each operating decision 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 initial 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 historically outsourced nature of homebuilding production, that capacity has to be separated from the nature of its 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;  it is Operating Expense (the indirect, non-variable cost of its internal resources) that determines a homebuilding company’s 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 revised version of the Pipeline game™, we restored Revenue and Cost of Sales to the equation, thus 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 just define the production system’s capacity, with the cost of those resources reflected in Cost of Sales, and stipulated as a percentage of Revenue;  as it relates to Revenue, they are a direct, variable cost associated with the construction of a home.

The cost of the system’s capacity is its Operating Expense, which 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 that it).

This represents a significant stride in reconciling Revenue, Cost of Sales, Throughput, Gross Income, and Operating Expense to each other, 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 enormously.  But – we never stop;  the Pipeline game™ keeps getting better and better.

For example, at a recent Pipeline workshop™, we introduced a scenario that contrasts the homebuilding industry’s current, accepted growth and operations strategy (a completely outsourced building model) with a radically different growth and operations strategy (a completely integrated building model).  We did it to explore and compare the difference between a strategy based on a broad-shallow footprint and one based on a narrow-deep footprint.

Come.  Participate.  Learn.

 

The next Pipeline workshop™ will be held March 23-24, 2022, at the Ponte Vedra Inn and Club, in Ponte Vedra Beach, Florida.  The cost is $945.00 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