Lean Building Saves Big Bucks for Houston Builder

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Scott Sedam: Mike, everyone knows the name David Weekley Homes [1], but give us a quick picture of where the company is today and what you are building.

Mike Funk: David Weekley closed approximately 2,300 homes in 14 markets across the U.S. in 2009, and we project about the same this year. We build homes anywhere from $150,000 and around 1,800 square feet to $1.2 million and 6,000 square feet. We have always been known for design and are now including energy efficiency as part of our brand recognition. If we adopt an idea, we try to apply it to all price ranges, so whether you buy that $150,000 home or that $1.2 million home the practices, procedures and products are the same.

SS: David Weekley Homes has become a leading advocate of Lean methods and processes, and you quote some impressive results. Let’s start there and work back.

MF: We documented $3.2 million in our first year just in the Houston division, and that in itself was a shock to the rest of the company. One of our senior vice presidents, Mike Humphrey, was so impressed he sent the information around and encouraged all of our cities to take a serious look at Lean implementation. From that, most of them went down the Lean path. It’s now a proven way of doing business and we’ve been supporters ever since.

SS: There are all manner of builders who have tried what they think is Lean implementation, but don’t have much to show for it. How has David Weekley Houston not just identified the savings but then booked them and documented them?

Jennifer Heitmann: Having someone in a position like mine with my main focus on Lean implementation has been a key for us in getting things accomplished. Initially there’s a lot of low-hanging fruit to pick. After that, it’s setting up a process to take it from beginning to end, following the steps and getting the right people involved from the office, field and trades. When I came on board three years ago, I was very fortunate because we ran a LeanBlitz within the first three or four days that I was here. It was a good platform to start from, and from there we formed a division Lean Team. We met each month the first year, and now we meet quarterly. Everyone in the company, from construction to purchasing, design, warranty and sales, is involved and knows their role.

SS: David Weekley Houston is building 800 to 900 units annually, so it is not so hard to cost-justify a position like Jennifer’s. But what do you say to a company that’s doing 150 units and they can’t afford a full-time dedicated person?

MF: I might disagree with your assumption, Scott. As I think this through, while we’re having this conversation, I’m asking myself why we don’t have more people like Jennifer in similar positions, because here’s what happens: Often you get Lean started in smaller operations without someone dedicated to the concept of true Lean. Maybe you have a purchasing manager running Lean, and they’re reporting things that are savings but not directly related to Lean; it’s mere cost cutting as opposed to the elimination of waste in product and process.

SS: Yes, I have seen that.

MF: With a truly focused Lean implementer, you take it to another level. While the purchasing agent looks at the cost of a contract, he or she is typically not trying to uncover waste and inefficiency, whether internal or external. With Jennifer in her role, I know that we’re specifically getting better and saving money as opposed to just cutting costs short term regardless of collateral damage. That’s the crux: Are we moving down that path?

SS: What we see so much is that a builder pursues cost reduction based purely on contract price and does not understand that, on a total cost basis, often they aren’t saving at all. They change roofers for a nickel a square then their warranty claims increase and that nickel a square looks like the worst deal they ever made. Have you worked on getting your people to understand the total cost perspective?

MF: We’ve worked pretty hard on that, but just as important are the human costs. We know that having a lot of employees is an expensive proposition when the market is down. So you want to be as efficient with your personnel and your people as you can. All builders have cut staff. But what we see is that as builders get smaller, they let the wrong people go. What we’ve done locally is keep the best people, even if the initial cost was higher. We didn’t squeeze that last nickel from the human end of it. Similarly, with our suppliers and contractors we take the same human capital philosophy. We want them to be efficient, but in the right way, and not offer us a contract that they can’t deliver on because they actually don’t have the personnel to execute it anymore.

SS: Those are great observations, and I wish more builders understood Lean like you do. Jennifer, you may be the only person in America with the title “Lean building analyst.” I think the audience would be interested to hear what you are working on in a day-in-day-out basis.

JH: We just had our quarterly Lean Team meeting, where we focused on our top variances for 2009. We looked at the top five variances and had a roundtable discussion with all the functional representatives on how to improve things. We had a huge project last year on landscaping. Like most companies, we had landscape set up a budget with the developer requirements. You pay a set fee, and that’s what you get. In our Lean initiative we looked at exactly what we were paying for and exactly what, for example, a five-gallon shrub looked like. What kind of plant was that? What really is required by the developer? What do we need to portray the look that we want for David Weekley Homes? It was a very intense, detailed effort that took several months. We met with nurseries and landscapers and examined every community, down to the trees, the shrubs, the sod, the talent — literally everything for each home and lot. In the end, we saved close to $900,000 on that project.

SS: Amazing! That was just for your division, $900,000?

JH: Yes, that’s just one year for Houston, based on accurate counts on what was required for each community, specifying things right and then eliminating a lot of variances. We actually determined exactly what we needed and we weren’t just relying on some obscure budget.

SS: I have to ask you, though, and it’s a great fear out there, if I’m the customer and I’m looking at David Weekley Homes this year compared to last year, will I see any visible difference?

JH: Yes. It’s a significantly better product.

MF: Let me give you an example. For a tree that is fairly common for our landscape packages, we negotiated with two companies in the city instead of 12 to get economies of scale. We were able to get them involved at a higher level so that we actually could upgrade what we deliver to our customers and provide more visual flair, and for less money.

SS: Ninety percent of builders would say it’s impossible to have houses look better, suppliers and trades happier, make it easier on people administratively — and save $900,000. They’d say, “Here’s how you save $900,000. Take everything from the five-gallon to the two-gallon, replace the 12-foot trees with 6-foot trees, and just sod the front yard, etc.” They just dumbed down the house and made it harder to sell.

MF: A few years ago maybe we would have said that, too.

SS: I remember an example from three years ago. Your plumber said, “You guys are the only people in town that use a double layer of Hardie backer. Why?” A couple of your guys got on the phone and called one of your field superintendents who’d been around for 25 years and asked him. His answer was, “I don’t know. I think we were doing it when I got here.” Nobody knew.

MF: We did find the answer. One of our division presidents wanted a heavier look for the tile. One man in one area, without really thinking it through, made a decision, and soon it was double Hardie all over the place. We made the change and not one customer has made a comment in three years.

JH: We ended up saving $280,000 by getting rid of that one layer.

SS: Mike and Jennifer, you have been great and we appreciate your candor. In closing, what advice or observation can you give to builders, suppliers or trade contractors considering their own venture into Lean processes?

JH: So often people are afraid to ask the question. Even if it’s been going on for five, 10, 20 years, ask the question. Maybe no one’s ever had the nerve to question it. So ask those questions, think outside the box, and you’ll be surprised at the amount of success you can get very quickly.

MF: If you roll up the Houston division over the past few years, we have saved more than $10 million. I know that many smaller builders will hear this and think, Yeah, yeah, that’s a big company and boy they must have been incredibly inefficient and all that. But it’s a legit number and my question to the listeners is: Why haven’t you found it? You have good people in your organization, but you haven’t focused on it in the right way. We needed help and you do, too. We didn’t think that we were a bad company. We didn’t think we were that inefficient. But we also didn’t think that we had $10 million sitting around, just laying there over the last three years — but we did. And so I suggest strongly that people take a look at Lean building, because both philosophically and from a practical and bottom-line standpoint, it’s a process that pays for itself.

This is a highly abbreviated transcript. Click here for the complete transcript and audio interview.