From the lack of meaningful savings to the overwhelming time commitment, Lean operations guru Scott Sedam refutes the most common misconceptions about implementing Lean process in home building.
A builder I have known for years went down recently — bankrupt. I heard from one of his people the “final figure,” that is, the amount he needed to avoid receivership, and I just shook my head. The builder had been contemplating Lean process implementation for years but had never pulled the trigger. Had he adopted Lean and done half as well as other builders of his size and product type, his savings would have covered what he needed to survive. Something always stopped him though, and most of it was imagined — part of the mythology that develops around something new and challenging to the status quo.
These myths can easily grow into obstacles that prevent builders from moving forward, especially for those looking for an excuse not to change. Here are 10 myths that I hear most often, and how to answer them.
Fueled by the approach taken by some of the country’s largest builders, the term Lean has sometimes become errantly associated with ugly homes. It takes little talent to strip down a house, flatten the roof pitch, and remove visual appeal, thus reducing cost. The real skill is to understand how to preserve a look or even enhance it, while reducing cost. (For a vivid example, see Todd Hallett’s Lean Design blog .)
When designing a new model, the goal is to create a great look and highly livable floor plan using every trick in the book to reduce cost, and that includes structured input from your suppliers and trades. We have seen it work too many times to deny that it can be done, and the best builders have taken market share in this depressed market using this strategy.
First and foremost, Lean is about value — a bigger and more inclusive concept than mere cost. Yes, builders sometimes apply the term Lean to brutal slash-and-burn cost reductions applied unilaterally. That is antithetical to genuine Lean process, the simplest definition of which is the continual pursuit, identification, and removal of waste in product and process.
Waste is anything that does not contribute value — anything the customer will not willingly pay for. Traditional cost cutting occurs in silos, without regard to who is affected upstream and downstream. These impacts cannot just negate the initial cost reduction from the unilateral approach, but exceed them. Lean examines each process, internal and external, finding and removing the waste, and reducing cost while maintaining the health of all constituents.
Rebids address one piece of the cost equation — bid price. As stated in my June 2011 Professional Builder article, “10 Elements of the Total Cost Model,” “The only thing that purchasing on low bid price alone guarantees is that you will never operate by lowest total cost.”
There are nine other factors to consider in that model, the costs of which can easily exceed what you initially gained in the rebid. A rebid is not Lean. In fact, it obstructs Lean process. When you ask a framer, a plumber, or a supplier of roofing material to rebid, you ask him to reduce his sales price, thus his margin, on the same labor and/or material that he provides today. That does not improve product or process.
Lean, on the other hand, cries out: Let’s do something different! Let’s find a better way to build it, to schedule it, to ship it, to use a different material, to remove a step, to do more with less, to save a trip, to save a day, etc. And, in doing so, this reduces cost for everyone. Lean is harder than a rebid and takes a lot of thought, but it’s far more rewarding.
Value engineering (VE) is a powerful set of tools, and like those of Six Sigma, they fit neatly under the umbrella of Lean (see “Beyond Value Engineering ,” Professional Builder, September 2010). However, Lean goes beyond value engineering with far greater inclusion of suppliers and trade contractors, as well as your own people. Whereas VE focuses primarily on product, Lean gives equal attention to process. Lean’s emphasis on waste in product and process takes the value engineering equations, various iterations of function/cost, across a broader scope, and that has an empowering effect. Participants often get lost using higher-level VA tools, such as FMEA (failure modes and effects analysis), but when a team begins at the level of identifying and removing waste in Lean, this rarely happens. The VA/VE toolkit is effective, especially for a deep examination of a specific feature or component, but it is more powerful when used in the context of a wider Lean process implementation.
If you spend just an hour reading the history of the pioneering companies in Lean process worldwide you will realize the fallacy of attempting Lean implementation without the participation of suppliers and trade contractors. We call ourselves builders, yet we virtually never build. Builder personnel bring an essential perspective, but without the input of those who do the work on a daily basis, you will miss 80 percent of the opportunity. In many of the other myths cited here, I talk about the critical impact of supplier/trade involvement. A Lean process without such involvement is nonsensical.
When doing cost analysis, construction, purchasing, and estimating personnel often get on a roll taking money out of houses, but it is sometimes hard to stop and ask, “Is there value here?” The voice of the customer must always be included, and for that you need the involvement of sales, marketing, design, and warranty/service. In Lean, everyone who touches the product and process must be afforded a voice. With good process, this need not take longer, and even if it does, better choices and decisions will recover that time quickly.
No one has enough time or people today. That’s a given, and this should be one of your prime motivations for pursuing Lean. Think about it: With good Lean process you develop a prioritized list of action items sorted by potential savings and degree of difficulty. Each item is something that needs to be done, but now you understand it better, who it impacts, what it’s costing, key information on how to attack it, and a measure of the impact. Now you have a plan to remedy the things that are stealing your time and burying your people. Things now get easier, not harder. Lean process is the quickest route to getting unburied and freeing up your people.
The tendency to undervalue process savings cannot be overstated. A common problem cited by trades is not enough detail on PO’s to know what to order and what to bring to a site. Add to that confusion over VPOs, colors, selections, and changes in schedule. Eliminating 10 phone calls for each of 25 suppliers and trades per home would be a very conservative goal. Let’s say you build 100 homes. That’s 25,000 phone calls annually. With 250 work days, that is 100 phone calls per day. If they all came to one person, could that one person handle 100 calls per day — better than 12 per hour — with all the chasing down of details, not to mention how one call often begets several other calls? Impossible. Can you believe you easily have one full-time-equivalent tied up just dealing with phone calls to clarify what’s being built, how, and when? With salary, benefits, and overhead, let’s peg that cost at $75,000 annually. Now, you tell me, hard cost or soft cost? How can anything that hurts that much be anything other than hard?
I once heard a purchasing manager say in regard to the many extra trips the lumber company was making on the builder’s behalf, “So what? Those are his costs and they don’t count for us.” If you are hoping to crack the code on Lean, you have to acknowledge that a dollar is a dollar is a dollar, and no matter where it falls, it is important and it counts.
Costs buried in your suppliers’ and trades’ overhead are part of the bid, even if you don’t see them directly. If you change your process to eliminate wasted trips for a supplier or trade, for example, you will get the benefit in time — often faster than you may expect. We hear many variations of another refrain that is just as fallacious, “The framer bid that by the square foot, so changing the design saved him a lot of labor, but it doesn’t save us anything.”
First, we have to get away from blanket per-square-foot bidding, where everyone is just guessing. If those four huge eyebrows, six unneeded corners, and excess rake you just took out of the plan to make it both more efficient and more attractive were identified by unit cost, getting the savings back would be easy. Even with per-square-foot bidding, a “leaned” plan should be bid less than your current plan. If your framer is unwilling to work with you on this, you need a new framer.
So many builders think that Lean means being “skinny,” with low overhead. Although that may be an outcome, through Lean process you get there in a very different way. So let me challenge you on that. When did you last hold a formal, structured plan review for a new plan before you began the model, including every key supplier and trade? How about for an existing plan? Do you meet with a smaller group of key trades monthly, in a structured format, to work on common issues? Do you track every house for the number of days in each phase of building and use that data to improve your schedule and build times? Do you know exactly what a saved day is worth to your company, and what a wasted trip costs your suppliers and trades — and do you track them? Have you scoured your houses for excess sticks, bricks, tie-downs, concrete, wire, pipe, tin, etc., which is beyond both the building code and the customer code? Can your waste per house fit in a single, low-side dumpster, or less? Do your plans have the required detail for each trade to build it right the first time, every time, with zero waste? Do you operate with virtually no late change orders because you manage the customers as well as the building process? Is your warranty/service less than half of 1 percent annually (no cheating)? These are just a few of the hallmarks of builders who have embraced Lean operations and practice it daily.
If you read this entire article, there’s a good bet you are doing some of these. But we’ve never found a builder who could say yes to all (although we know some that are making serious progress). So get beyond the myths and get started. All you have to gain is profit.
Scott Sedam, former home-building executive, well-known writer, and frequent speaker, is president and founder of TrueNorth Development. He and his seven TrueNorth colleagues focus on the adoption of Lean operating principles into the home-building industry, serving more than 200 builder and supplier clients in the U.S., Canada, and Australia. Sedam welcomes your feedback at firstname.lastname@example.org.