Oklahoma State Home Builders Association

An Affiliate of the National Home Builders Association

Keynote today: LEAN about value, not cost

 
Posted on September 11, 2014 by Carol Hartzog

It's standing-room-only for Scott Sedam's morning breakout session.
It's standing-room-only for Scott Sedam's morning breakout session.

Editor's note: This report was filed from the 2014 Oklahoma Building Summit held at the Reed Center in Midwest City.

Lean home-building advocate Scott Sedam told the almost 400 home builders this morning his talk is not about cost, but informing builders about the cost of processes that don't have any value and therefore don't have any benefit.

Sedam has been a consultant more than 15 years to the construction industry, and this consultant has worked in building industry -- 15 years with Pulte. Previous to that, he was in quality assurance with Motorola and US Steel. There, he dealt with the unions, and saw where improvements can be made.

"I am here to get you to look at the same things you looked at, and look at them a little differently. I see some opportunity there. That's a goal we are trying to accomplish," said Sedam.

When he was with Pulte, his boss told him to make the rounds across the country, but leave Houston to last. They are making lots of money, hand over foot, he was told, so go to them last.

It was boom times.

What he found was shoddy building in Houston. How were they making money? On the land. It was purely a land play. It was horrible. The builders hated their customers, they hated their trades because the houses they were building were cheap. He cited his business mentor: When growth stops, you find out, the baby's ugly.' There were a lot of ugly babies when the recession hit."

"The years 1991-2006 are the best years that anyone will see in building industry." When land values dropped, about 50 percent of the home builders went out of business in the United States.

Today, we are going through some of the same things again. Land prices are going up, that's not good for home builder. Labor prices are going up. Everywhere in the country has trade shortages, with the worst in the country in Dallas, Austin, San Antonio and Houston.

Texas megabuilder David Weekly Homes told Sedam last month that the trade shortage has cost him $4.5 million in profit last year, due to delayed closings because of the trade issue. How much are you willing to spend on development of trades? "The great thing about trade work is, they can't send it overseas," Sedam said. What's wrong with builders is that we are not really actively participating in developing those trades.

Old solutions in a downturn:

  • Slash overhead
  • Lay off staff
  • Hammer your suppliers and trades
  • Increase sales incentives
  • Reduce sales prices
  • Cut production
  • Stop buying land, walk away from deposit if necessary
  • Sell land, auction if truly desperate
  • Find a desperate partner.

Today:

  • Every product and process evaluated for waste
  • Savings found systemically with total impact on all
  • View trades as partners
  • Product and process focus
  • Focus on value
  • Continue products and process improvement both short- and long-term, including all who touch the product or process.

Let's take a "Lean" look at process: Approximately $250 is lost on average per new home. That can add up for larger builders, up to $50,000 can be lost by a large builder who builds 200 homes a year

How? Here's how:

Sedam's company research has shown it costs $200 average per home per extra trip to the lumber yard. There is an average of 50 trips per site that shouldn't be necessary. That's $10,000. How to solve the problem? Go the lumber yard and talk to them. "Let's talk about what we can do to help you (the lumber yard) reduce the number of trips to save you money. Painters, dry wall, mechanicals, all will talk to you about all the extra trips. Reason? Someone else is in the way when they arrive. Less than 10 percent of the extra trips they make do they ever charge extra for additional trip to site. So, your team works it out in field before it ever comes to you. You just buried the problem. Then, your superintendent leaves you. You end up with about 40 favors he owes someone. Less than 10 percent of those extra trips ever get submitted, and less than 10 percent ever get paid.

Approximately 99 percent of all the extra trips your suppliers make you never pay for. Does that cost go away? The trade still bears that cost. It will come to you in time. Otherwise they can't stay in business.

Start a communication line with your trades. Talk to the lumber companies. Can they shift loads so first-needed stuff is stacked on top, as opposed to the not-needed-right-now stuff on top, put aside, and then it sits there and possibly warps, and then someone has to do a hot shot' trip out and who's going to pay for that?

Here's why there is waste:

  • Contract errors
  • Selection errors
  • Wasted trips
  • Schedules
  • Plan errors
  • PO/s VPO's
  • Specification errors
  • Late change order
  • Waste from suppliers
  • Duplicate efforts
  • Rework
  • Extra phone calls.

 

Approximately $9,000 average a house is in waste. What are you going to do about it?

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