Last month, I attended NAHB’s midyear meeting in Miami and had the pleasure of sitting in on a presentation by Daniel Swift, president and CEO of Des Moines-based architecture group BSB Design.
Spotlight on Ellen Knorring: On-Track Mind
Determined to make sure her department helps management meet its goal of turning last year's 352 closings into 1,000 by 2010, Ellen Knorring, director of purchasing for Stanley Martin Companies, will need the vigilance of a hawk to keep on top of new Giant purchasing processes.
Talk about dedication. Ellen Knorring used to play racquetball at least four times a week. But these days, she's pretty busy at work. She even bought a house right across the street from her office. Then — bummer — three days after her January move-in, the company relocated.
"I tried to convince them to not move but they wouldn't listen to me," she says. She's kidding. We think. Because the builder she works for, Stanley Martin Companies, moved only 1.11 miles down the road in Reston, Va. Then again, maybe she's serious; this is one director of purchasing who's single-minded in her pursuit.
She's determined to make sure her department helps management
meet its goal of turning last year's 352 closings into 1,000 by 2010. To do that, she'll need the vigilance of a hawk to keep on top of new Giant purchasing processes.
Knorring celebrated her third anniversary with Stanley Martin in January. In this short time, she has proven her ability to "base decisions on measurements, as opposed to word of mouth," says boss Michael Schnitzer, chief operating officer. Knorring credits much of her success to her boss, a "horizon thinker [with] an amazing mind." To be sure, the COO has a mind to hold his purchasing chief to three main objectives this year:
- Reduce purchasing costs by one dollar per square foot per quarterly period
- Reduce contract variances to reach one percent
- Contract all jobs 100 percent before all sales openings
The first goal, reducing purchasing costs, indicates "how well you negotiate," Schnitzer says. This is being accomplished through various estimating and measurement programs. The second goal, reducing contracting variances, speaks to "how accurate your contracts are," says the COO. This is important to management budgets because each percentage point translates to a range of $2,300 to $3,500, and in recent years, variances topped two percent. Finally, Knorring is indeed moving to lock in contracts before the sales trailer opens, which satisfies the third goal as it reinforces the second by sealing estimates in concrete. How Knorring came to embody such competence is a story more than two decades in the making.
Knorring started her career as a degreed architect in the early 1980s. She worked in Chicago for five years on commercial and residential projects in the early 1980s, but found it "fairly routine and repetitive." So she sought work in the architecture department of a local division of U.S. Home. After a battery of background checks, screenings and interviews, she was offered a job.
"The odd thing was that in the whole course of my interview process, and all the paperwork and correspondence, I said I was applying as an architect. And when they offered me a job as a purchasing agent, I said, 'what are you talking about?'" The company didn't have an in-house design department, but personality tests pegged her as a good detail-minded purchasing agent.
Knorring accepted the job and soon found it "really satisfying to be part of the whole process, as opposed to just owning a little piece of a project and never getting to see it through."
After 22 years in purchasing for builders in Chicago, Las Vegas and metro Washington, it's evident her staying power is no accident of fate. She doesn't think about going back, even if Stanley Martin does have its own in-house design department.
After Knorring's performance last year, management promoted her from regional purchasing manager of the headquarters-based Northern Virginia to director of that and two new divisions, one in southern Maryland and the other covering western and West Virginia. She says the new operational scheme helps her better manage a trade base working on 15 to 20 neighborhood projects at any given time because "the D.C. metro area is sprawling [and] dealing with the local contractor base from one end of the market to the other of the market is important."
As of January, her department included one purchasing manager for each division and a general buying manager for commodities used across all three divisions. She now has the resources to keep costs down, cut variances and get those jobs scheduled as efficiently as possible.
This year's goals were made more attainable because last year, Knorring's crew reduced costs by trimming unnecessary complexity from the product catalog to cut costs and free-up resources for further improvements.
"In the past year, we took a hard look at what we felt the public wanted and we were actually selling, and we dramatically reduced the number of options we were offering," Knorring says. By dramatic, she means she slashed roughly 60 percent of the company's design studio options and between 40 and 50 percent of all structural options. She admits it was "pretty shocking" to learn that many options were selling at a rate between zero and five percent of homes. "So much time and energy were being spent estimating and maintaining prices on materials and labor that we weren't even selling!"
Paring the catalog of those unwanted items lifted the burden of estimating and maintaining prices on that bulk of items that weren't selling. This not only made purchasing more efficient, but also has reduced suppliers' efforts to manage their accounts with the builder, creating an avenue for lower supply chain costs.
Michael Roman, chief financial officer, says the problem was that the product catalog "pie just kept on getting bigger and bigger over the years." His observation of the project is that Knorring was "very disciplined."
Under Knorring, purchasing is working creatively with partners to cut costs without sacrificing high quality or product performance.
"We're basically moving from one methodology to another one in terms of how we contract," Knorring says. "We're buying jobs rather than just bidding them."
If the difference sounds subtle, it's effective because more in-house research on supplier prices is giving the builder more knowledge. That knowledge is supply chain power.
In the past, the company would make plans available to a broad trade base. They would then collect bids, analyze the best, negotiate and contract. It sounds pretty normal, right? But she says the new way of "buying a job" is different. Purchasing researches what it's willing to pay, then selects a group of preferred vendors with whom to negotiate.
This initiative is, however, tempered by a broader, global view of partner relationships in which all parties can win. Details include:
- Improved trade schedules to keep crews and supervisors at one site instead of "ping-ponging between jobs," Schnitzer says. The trade savings can then be passed along to the builder.
- Bundled jobs for the long view. While the exact proportions vary, the overall policy is to give the top-performing trade in a category 60 percent of the work; the next-best trade 25 percent and a third trade 15 percent. This motivates partners because it can mean the difference between a $10,000 job and a $100,000 relationship.
- Better unit pricing as estimators evolve their analysis from lump-sum bids to break out labor, materials and even parts. For example, a sub-assembly or a piece of a larger system can be substituted to save money for both the trade and — in turn — the builder without affecting the overall system's performance or reliability.
- All parties — builder, partner and customer — win because the system maintains margins while delivering an end product with maximum value.
Knorring excels at measuring the transactions involved in trade partnerships as well as in-house processes to get jobs contracted earlier and attack scheduling variances.
Each week, purchasing meets with other departments to review days of variance on the construction schedule. These are predictive meetings where slowdowns and glitches are the focus. For example, a late lumber delivery might be holding up a job, or a plumber who sent out a skeleton instead of a full crew. "These meetings give us the opportunity to find these things out, and to investigate and resolve them," says Knorring.
She's going even further to root variances from within. By tracking when her own department makes calls to schedule crews, Knorring makes sure trades have ample notice to do their own scheduling. This effort feeds the need to have jobs 100 percent contracted before homes open for sale in all neighborhood projects.
Purchasing shares an arsenal of measurement tools with other operations, such as a job-ready program developed in-house that tracks trade scheduling, worker and job processes. Some builders add a second "job-complete" element, but says another tool, the in-house Trade Partner Scorecard, addresses this. This tool provides regular grades on trades for better decision-making.
Despite the complicated processes involved, Knorring makes them sound simple. "So much of what we are doing is basic common sense."
All the details of managing a growing slice of Stanley Martin seem to fall in line for Knorring, from purchasing to a larger zero-defect program and a role in working toward a National Housing Quality certification with the NAHB Research Center.
She may yet find time to book more time on the racquetball courts. But at the moment, she's busy serving on the steering committee of a Regional Quality Council of the Northern Virginia and Maryland-National Capital building associations. There, she's sharing best practices and working to standardize the job forms trades use with builders across the region to improve both quality and customer perceptions of the home building industry.
Talk about dedication.