“Whenever I start working with a client, I recommend an audit of the process first,” McElroy says. “You want to pull 10 or 20 houses from your most popular plan and audit brick-and-mortar costs and overhead costs associated with that plan. Then, drill down to see if there are different costs from different subcontractors or field managers. Some field managers might spend $5,000 more in miscellaneous costs to get the plan built. Multiply that by 200 homes, and your profits are compromised.”
At Quadrant, Krivanec says it was his firm’s focus on process that helped it evolve after the housing bust and come out on top to ride the wave of the recovery. A proponent of lean manufacturing—he once sent Quadrant’s teams to Toyota Motor Corp.’s so-called University of Toyota training program in Southern California—Krivanec says the only wiggle room within Quadrant’s even flow approach comes in the form of unscheduled non-workdays, which can be called from the central office at any point during a given construction run.
“We’ve learned to focus on customer service throughout the construction process. We don’t just talk to them when something has gone wrong.” – Ed Walters Jr., founder and partner, Walters Group
For instance, during a recent build cycle, labor shortages among some key trades started to pop up at one of Quadrant’s sites. Since all of its superintendents are required to call in the status of each home every night, executives within the construction division at its central office were able to identify the shortfall early and pull resources from other areas.
“We called a non-workday on our other sites so that the ones who had fallen behind were given the opportunity to catch back up. If you don’t have the trades you need, and you try to keep the schedule going, it would be a disaster. So we stopped and fixed it,” Krivanec says. Customers were then notified of the non-workday that ultimately would then push their completion date out, even though their home stayed on schedule in terms of days worked.
That holistic approach across all of Quadrant’s home building sites doesn’t stop with workflow, though. Quadrant centralizes all procurement from its main office as well, so that on-site supervisors aren’t putting in work orders for non-contracted items or using off-list vendors. At the same time, its vendor base for core items such as framing and other essential materials has expanded to target the best suppliers and trades within each of its market areas.
“It’s all centrally managed,” Krivanec says. “Our superintendents can focus on quality and safety and interacting with the customer because they’re not ordering materials or supplies.”
Anything But A Cookie-Cutter Approach
Focusing on product first also can seduce a builder into the notion that he or she can duplicate profits in one market simply by building a similar design next door. But there’s a reason why real estate’s enduring mantra holds true in every facet of the building process.
“Particularly for large builders, you see the mistake again and again where you have a successful series in one location, so you try to put it somewhere else,” says Patrick Hamill, CEO of Denver-based Oakwood Homes, who notes that in his company’s “3Ps” business philosophy—people, process, product—the focus on the finished home comes last. “The truth is, every street corner is different.”
So instead, Oakwood—ranked No. 48 on this year’s BUILDER 100—starts the process by studying “what fish are in a particular pond, and if there are enough of them for us to make a profit.”
For instance, Oakwood’s recent expansion into Salt Lake City meant redesigning floor plans to fit the Mormon culture there, including study rooms at the front of the house, and enough area within the home for long-term food stores. Then, there was the fact that Oakwood couldn’t just plunk down homes wherever it could get land in that market, because “those buyers want to live close to their temple, and they’re not going to leave their ward. They’ve already lived there for 30 years.” Contrast that to the Denver market, where buyers will drive throughout the metro area to find the best deal.
Customers Come First
Making customers part of the process is vital to building a center of excellence. For Barnegat, N.J.–based home builder the Walters Group, that means including customers at every turn, from start to completed home, as well as long after the sale, and being proactive with them.
“We’ve learned to focus on customer service throughout the construction process,” says Ed Walters Jr., founder and partner at the company. “We don’t just talk to them when something has gone wrong. We stay in touch from the initial meeting to the closing and even afterwards. And we feel that by doing a good job on warranty we’re putting our customers first, which is the best way to keep customers and gain new ones.”
While nearly all builders conduct final walkthroughs and periodic site visits to maintain quality control and avoid spec drift in their product, maintaining the vigilance to keep tabs on the processes behind that product requires constant and consistent discipline.
For example, the same problem that Quadrant encountered by offering too many options to its customers is an issue that crops up with many home builders. Basically, in an effort to keep customers happy with the end product, builders often bend over backward to give them what they want in their finished home. But doing so subordinates the processes you’ve put in place by focusing on product first. To avoid that trap, supervisors and division presidents have to be committed to knowing what’s going into their homes at all times to keep a gauge on costs and profits.
“It’s easy to get addicted to the front end of the business,” McElroy says. “You’re out there buying land, developing lots, and selling all of this year’s houses. But when’s the last time you took two days to sit down in the design center and talk to the manager there? When you do, you’ll figure out that you’ve gone from offering 200 different products five years ago to offering 1,000 today.”
He continues by noting that “people love to add stuff, but they’re very reticent to subtract anything away. Everybody gets so vested in their department, they’re never going to come to you and say, ‘We want to quit doing this.’ It’s up to you as the leader of the company to drive that and make sure they do.”
Discipline Rules
Maintaining that kind of discipline is a product of intent that requires having backstops in place to ensure processes are monitored consistently, not just when a problem is identified. For Quadrant and Krivanec, that means regular team meetings to ensure schedules are on time and processes are moving forward, with specific checkpoints along the way.
