This is a longer version of an article that appeared in print in Pro Builder's July/August 2023 issue.
I recently attended a seminar at a building industry convention where the presenters compared the productivity from the Agricultural, Manufacturing, and Construction industries from 1947 to 2010 based on data from McKinsey Global Institute. Over that 63-year period, Agriculture’s gain was 1,600 times the gross value added per 1 hour worked, double that of Manufacturing. Construction’s gain was 1.
To be fair, Construction did make some gains from 1947 to the late 1960s, but since then through 2010, the construction industry was basically back to the same output per hour worked as it was in 1947. While I find it hard to believe that our industry's productivity is actually that bad, there is no arguing it has lagged behind others in efficiency gains—by a lot.
This lack of productivity improvement has had a profound impact on housing affordability, available labor, inflation, and other challenges builders face today. We need to figure out how we can improve productivity and efficiency so we don’t need as many people as we do today to accomplish the same output.
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Improving Productivity: Do More With Less?
There are definitely some things our industry can do to improve productivity through simplification, standardization, off-site construction, automation, economies of scale, vertical integration, and housing design. Let’s tackle those one at a time.
As an industry, our floor plans are getting more and more complex. Higher ceilings, longer floor spans, multiple dissimilar materials plastered or nailed on our elevations, and countless structural and design studio options. With complexity comes inefficiency.
I ask you: How many floor plans does a home builder really need to be successful? And how many structural options, which make building a home exponentially more complex (and expensive)? Most errors on a jobsite are associated with an option, a “custom” specification, or a change order. That’s because every structural or design studio option creates variability that erodes efficiency.
I often ask installing trades who their favorite home builders are as I strive to be a preferred customer. The answer is usually a builder or general contractor that minimizes variations—namely, fewer floor plans with fewer options; those that even-flow production and don’t shower trades with change orders. That criterion will become more prevalent and important as volumes increase and our trade partners struggle to find skilled labor that is less prepared for complexity.
A couple of years back, the third largest HVAC installer in the market announced it would no longer work for home builders and instead would pivot to general contractors in the build-to-rent space, citing an example of a B2R company that offered only three simple floor plans, no options, and did not allow specification changes.
The company also said it could take new hires and train them in 4 hours on its scope of work for any of the three floor plans, then add them to a crew that could complete their work on two houses per day, every day. And while the company would make much less margin on those jobs, the improved productivity and a reliable build schedule would result in more revenue than working on for-sale production product. In essence, that company was walking away from complexity toward a more sustainable and successful business model.
The solution is to keep it as simple as possible. Once you have a proven floor plan that your customers like and your installing trades are familiar with, do all you can to reuse that plan. If you are a national builder, have a floor plan library available to all of your divisions. Yes, you may need to reskin an elevation or two to achieve a regionally appropriate look, but for the most part, floor plans will travel within a similar architectural style in almost any market.
Think of all the customer feedback you get on a new floor plan, what buyers like and what they don’t. If that floor plan has been around long enough, you have likely (hopefully) addressed those concerns and adjusted accordingly. Now think about all of the feedback you received from your installing trades on that plan, ideally also addressed . And the warranty challenges also have been taken care of … right?
With all that work done, why would you want to start over in every new community? I understand there are a few states that want new designs for every community, but I have been successful in the past at starting with a proven plan in an adjacent market. Even if you can’t do it everywhere, it’s worth it every time you can reuse a refined plan. Whether you are a national, regional, or local builder, reusing proven floor plans enables everyone involved to advance up the learning curve rather than starting over with a completely new plan.
Standardization to Improve Productivity
If you’ve spent any time in another industry, you’re familiar with the benefits of standardization. However, very few home builders have followed suit. How many window SKUs do you really need? How about doors and door hardware, cabinets, molding, and sinks? I have walked houses that had more than 20 different windows SKUs. We certainly want to enable as much natural light as possible in our homes, but you can do that with far fewer window sizes. I’ve walked homes where the builder used just three window SKUs. Maybe that is too few, but most builders use far too many.
Let’s look at the efficiency impact of using too many window types, sizes, and colors. First, even with cellular manufacturing and computer numerical control (CNC) work cells, there is additional processing time for machines to adjust. So, we create manufacturing inefficiencies with each different SKU.
I worked my way through university in a manufacturing facility and know firsthand the efficiencies associated with repeatability. You get into a groove and become more efficient. Time and motion studies are used to develop new ways of doing old processes faster. I was always amazed at all of the new ideas the company came up with by involving those closest to the process, even with products it had manufactured for years.
Let’s move on to the material handling aspect of too many window SKUs. It’s easy to package the same window size on a pallet, but with only one or two windows of a given size and the desire to fill a pallet with several sizes, the supplier needs additional packaging material to ensure the product will ship without damage‚ in turn also increasing the time to load pallets.
Too many SKUs also impacts manufacturers’ ability to implement reusable shipping containers, which adds to shipping material costs, jobsite waste, and dumpster deliveries to our landfills. Those inefficiencies also carry through to the local dealer, as they often need to break pallets down and repackage for lot-specific quantities.
Then there is the issue of damage in transit or damage on the construction site. If you are using a standard window size that your local dealer has in inventory, the replenishment time is much faster. Dealers need to be able to turn their inventory to keep costs low (a relative term these days); they simply can’t keep a spare window or component of every window type, size, and color. So, what happens when something gets damaged? The manufacturer now has to build something as a one-off. Other trades have to work around the broken window until it’s replaced, which could take weeks, causing additional trips to the jobsite—time that could have been spent working on the next house.
Let’s consider the poor framer. He now has to deal with an excessive number of window rough openings. That may sound like a small thing, but I assure you it is not when they don’t allow for a ½-inch opening on all four sides of the window. It really doesn’t matter if you make it too big or too small, there is rework involved.
And as we all know (or should know), rework is a productivity killer in any industry. I have worked in manufacturing, distribution, and home building, but I have never worked in an industry that has more rework than in home building. Doing a few things over seems to be standard operating procedure on almost any jobsite.
Lastly, think of it from the homeowner’s perspective. Imagine having to source window blinds for all of those window types and sizes. There’s just no end to the inefficiencies created by excessive SKUs.
SKU standardization is at the heart of efficiency. It is a building block that many efficiency improvements are built upon. To improve productivity, set a goal to reduce the number of SKUs you use. Drive more volume through fewer SKUs. Advance that learning curve and set your goals for the top.