In these times of increasing sales with decreasing margins, home builders are on a continual campaign to decrease costs. Every cost category from labor to materials to overhead to finance is up, while sales price increases are insufficient to cover them at the desired margin. But sometimes profit is sitting right under our noses, or at least under our roofs.
Last week I participated in one of the most exciting and productive afternoons I have had in a long time. Working with a client who has gone through our Lean processes and identified nearly $20K in savings target already, we decided to “take it to the field.” We formed three groups of seven, each comprised of four key suppliers and trades and three members of the builder team. Most supplier/trade participants were members of the builder’s supplier/trade council. Each team was given a house in the framing stage with mechanicals (and no drywall or insulation) to review in 90 minutes. Importantly, we gave them a structured process for the review and had one of the builder members marking out all suggestions on plans as we went. This was not just “Hey, go look it over and see what you think!” After their review, each team in turn took the other two teams through their house and went over what they found. That gave all an opportunity for input. We were done in about four hours, start to finish. The results? All the numbers aren’t in yet, but it looks like more than $2.5K per unit in savings on average, and could go higher.
Now, hold on to your seats for a moment. At this builder’s volume, that is over a million bucks! And the builder did not ask suppliers and trades for one cent of a price reduction on anything (to their surprise and relief.) We could have been even more thorough by reviewing the same plans in the finish stage and seeing the models, but for that we’d need the full day. That seemed too much to ask for round one. Next time, I doubt that will be any problem, especially because the suppliers and trades involved found ways they could save as well. But heed this caution: Do not try this off-the-cuff without an organized process or you stand a fair change of wasting everyone’s time. The money is there for those with the will to find it.
Looking for more margin? For a hard look at where a minimum average of $10K per unit is buried in nearly every house in America, take a look at my August Article, http://www.probuilder.com/blog/why-do-builders-avoid-facing-facts-proces...
Willing to go all the way? For a deep dive into how to solve the current margin gap problem, email email@example.com and ask for our PDF “Bridging the Margin Gap.”