10 steps to adopting Lean building

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The positive impact from Lean operations across a wide range of builders of all sizes and types is inarguable. In last month’s feature (see “Building Lean: Beyond Value Engineering” [1]), we presented the rationale, essential process, and impressive results that stem from Lean process and methods. So, presuming you’re at least curious, if not convinced, how do you get started? Open a book about launching any process and most will outline eight or 10 steps for implementation, and why not? It’s a format that is easy to organize, easy to write, and it sounds so simple — just follow these steps and, as they say in Australia where I’m writing this month’s article, “she’ll be right, mate!”

Of course, it’s never that simple, and we begin with the caveat that any kind of business transformation is hard, especially when it demands we give up long-held habits and beliefs. Of course, you cannot change people, but you can inspire them to change, and we’ll cover a compelling approach to that in step 4. So, without further ado, here are my 10 steps to adopting Lean building:

Step 1: Assess current state

Let’s begin with the one huge challenge that most lists skip — determining your present situation. This step requires that you heed Jim Collins’ admonishment from “Good to Great” to “face the brutal facts.”

An almost universal response by those who undertake the Lean journey is, “We found out we weren’t nearly as good as we thought we were.” I have heard this from some of the best builders in America. You have to know your strengths and weaknesses. How else can you determine the appropriate entry point, your capacity for learning, and your ability to implement? This takes genuine leadership from senior management to remove the fear that goes with honest self-examination.

The differences we see in builders’ readiness for Lean are enormous, and there are many factors. One key consideration is the builder’s relationship with their suppliers and trade contractors. Some are so strong that the possibility of failure is virtually eliminated. Other relationships are so poor that remedial work is required before even considering Lean process and methods.

There are other factors such as the management team’s openness to new ideas and the state of their basic operational systems, but a major dose of “eyes wide open” honesty is an essential launch point.

Step 2: Begin with the end in mind

For Stephen Covey in “The 7 Habits of Highly Successful People,” [2] this step comes first. But experience shows that a little time spent on step 1 typically results in a more realistic and compelling step 2.

What are you after from Lean? In this economy, you may think “margin improvement” goes without saying, but don’t be shy about saying it first, and loudly. These days, cold, hard profit makes all the difference with banks, investors, suppliers, and trades. Meeting your obligations with aplomb pays off with more options of what to build, where you get to build it, favorable financing terms, and the best crews from your trades. Everything gets easier — and better.

A significant positive “bump” in culture, both internally and with your suppliers and trades, is another major goal. With Lean — when implemented wisely — cultural improvement comes quite naturally. Likewise, it is critical to establish that Lean process is never about “dumbing down” the houses or otherwise making them hard to sell. You can assume your sales and marketing staff harbors this concern, and with good reason, as a good look at the product built around the country during the downturn confirms. The ultimate issue is value, and many have forgotten it or chose to ignore it. Done right, Lean always increases value.

Step 3: Hold “the event”

Here is where we depart from most Lean implementation authorities. Nearly all recommend the delay of any major pursuit of waste that brings down cost until all of your people, not to mention suppliers and trades, undergo substantial training and the organization is deemed ready. In reality, this is the perfect strategy to ensure your organization is good and bored before you really begin.

Out of desperation during the downturn, we, as Lean consultants, were forced to circumvent the traditional early training requirements for the simple reason that no one would pay for them. Reluctantly, we redesigned what to outsiders is termed a “Kaizen Event” [3] to enable builder staff, suppliers, and trade partners to hit the ground running. Much to our surprise, we found that everything got better, in a hurry. Now we wouldn’t do it any other way.

That leads directly to step 4, but a caveat: the Kaizen process redesign is critical. You cannot simply skip the need for training, you have to replace it with exceptional process that gets to the same issues more quickly and effectively.

Step 4: Show them the money

In the Lean community outside of home building, Lean experts rarely talk about profit, especially in the early going, as if it’s a dirty word. I once heard a noted Lean “Sensei” (the master level designation for Lean practitioners) say with defiance to a senior executive, “Your focus on money demonstrates a lack of commitment to Lean.” My observation was that the executive’s concern about financial savings was in direct proportion to the Sensei’s cavalier attitude toward profit.

If Lean consultants working with your suppliers and trades cannot show you significant, six- or seven-figure dollar savings in one week without cutting supplier and trade margins, pull the consultants’ stripes and send them packing. Showing the money early brings broad support and buy-in that makes implementation dramatically easier. But here’s the key: In the “show them the money” equation, “them” must include suppliers and trades, as well as the builder. If they win, the builder wins even more.

Step 5: Get suppliers and trades involved

The warning in step 4 cannot be overstated. The great majority of cost-cutting efforts since the 2006 crash — including much of what builders try to pass for “Lean” — remain thinly-disguised re-bid tactics that rarely use the knowledge of the suppliers and trades in an honest way. Yes, re-bids, and even unilateral percentage demands, will work in the short run. After all, didn’t the customers re-bid the builders? Of course. But another round of re-bids reveals three flaws.

First, when you force all suppliers and trades through the same percentage knothole you assume they all have the same margins and efficiencies. That’s ludicrous. Second, the collateral damage and hidden costs are both large and rarely acknowledged. For example, what is the cost of no longer getting a trade’s best crews? Or a supplier’s extra care for delivery? Or letting the schedule slip, or not getting service for your customers?

Third, you lose the greatest potential cost reduction of all: the systemic elimination of waste in product and process. Without the full, willing participation of suppliers and trades you’ll find only a fraction of waste in the system. If management truly gets the fact that suppliers and trades hold the key to Lean, not far down the road you’ll look back amazed at what you have accomplished.

Step 6: Establish measurement and tracking

I’ve never met a manager that cannot recount a litany of improvement ideas that were never implemented. The old adage, “what gets measured gets done” is nowhere more applicable. Measurement parameters for all Lean initiatives must be set and reported with discipline and regularity, and they will look different from what you are used to. Have you ever determined the yield percentage for lumber in your top plans? Have you ever calculated the ratio of drywall purchased to drywall installed? How about square feet of drywall installed to square feet of living area? Don’t even try to measure these things unless you want to save a load of cash. Management needs these measurements to run the business no less than they need their monthly financial statements.

Step 7: Move upstream to lean plans

After launching a serious Lean implementation journey, at some point it will occur to you that a significant percentage of the issues your suppliers, trades, and employees identify could be avoided by paying serious attention to plans and product specifications up front. In the ideal world, that’s where you’d begin, but there’s a problem with that: Until you hold the event and show them the money as described in steps 3 and 4, very few architects, designers, engineers, or managers accept the magnitude of the problem.

An additional obstacle is when you begin with plans you often don’t surface the critical process issues that loom as obstacles, no matter how good the plans are. At the end of the day, practicality rules. Moving upstream pays off enormously in Lean, but experience says don’t lead with it.

Step 8: Challenge your engineers

Engineers never lose sleep or get sued when they over-design plans. Almost all code specifications are set to a minimum of 250 percent of calculated requirements. That sounds sufficient, but based on countless housing units reviewed over the past four years, the thinking in the engineering community must be, “Well, if 250 percent is good, 350 percent must be better.” In Lean, this is called “over-processing.”

No one would ever advocate under-building or going slack on meeting codes in any way, but simply accepting what is given to you without a challenge is guaranteed waste — extra cost with no value.

Try this: Take a unit you plan to build multiple times and give it to your usual engineer. Then give it to three additional engineers. Pay their fees, but tell all four that you’ll pay a $5,000 bonus to the one that comes in with the absolute lowest cost and most efficient engineering while unquestionably meeting all codes. You’ll learn a lot and pay yourself back the bonus fee many times over. Over-engineering is waste, and you may have to shake up your engineers to get a handle on it.

Step 9: Adopt essential lean practices

Here are eight practices that are absolutely vital:

1. Remember, Lean is not about dumbing down the houses.
2. Make sure all hands are on deck. Everyone who touches the product and process, from the builder staff to suppliers to trades, knows where waste lies. Lean is not the unique province of construction and purchasing.
3. Adopt a “religion of simplification” for product and process.
4. Abandon the “they don’t charge us so the savings don’t count” attitude. Lose it — or accept the loss of significant savings.
5. Redefine scopes to address Lean principles. The definition of a complete job in Lean is: 100 percent complete, on time with a minimum of waste.
6. Focus on waste, not cost. Waste reduction empowers people. Cost reduction restricts their creativity. You reduce cost more by focusing on waste.
7. Banish the phrase, “Well, that’s just home building.” Those words have stopped more progress than any other.
8. Flow is (almost) everything. The not-so-hidden costs of batch processing are astronomical. This is one of Lean’s key concepts, but perhaps the most difficult to accept and understand, especially for senior management. (This requires an entire article, but you can start on it now. Google “Lean flow.”)

Step 10: Stay disciplined

Discipline is not so much a step as it is an outcome of strong leadership. A few years ago, I listened in disbelief as a senior manager from a national builder stated categorically that it was a waste of time to get suppliers and trades involved because he already knew all of his company’s problems and how to fix them. His only issue was getting his managers to do it. Set aside for a moment the sheer arrogance of his statement — the notion that he could know what 20 or 30 supplier and trade firms know — his statement indicated a clear lack of discipline in his organization. This manager presumed to have the solutions yet could not get his people to carry them out. It was obvious to everyone else that day where the real source of his problems lie. Discipline in the execution of the daily requirements to run a business within a culture of continual improvement is essential. Without it, everything you gained in steps 1 through 9 will come to naught.