"Time is money," according to the old adage. This is no truer in any industry than it is in the residential construction industry. There are several viable options for builders of all sizes to improve operations and project management within their companies and, subsequently, maximize productivity and profit. While the options vary widely in both cost and complexity, all builders and remodelers can take advantage in some way.
The Dawn of the ERP Era
For large home builders, there is a lot of potential to make operations more efficient with an extensive business management system called enterprise resource planning (ERP). This system is just beginning to be used in the housing industry, but has already shown promise in other industries, such as manufacturing, over the last decade.
In basic terms, Allan Freedman of NAHB's Business Management Department said that establishing an ERP system involves having a consultant come into the company and ask some simple questions, such as:
- How can the construction process be done better or more efficiently?
- What is not being done in the correct order?
- What is not being done well?
Freedman said ERP can provide a whole new level of knowledge and value creation for home builders. The potential is great, both for very large builders, who can justify the expense of individual consulting and customized computer software systems, and for other builders who do more than 50 houses a year and can afford the more reasonable user fees for pre-designed templates of computer management programs. Because the value of ERP programs is based in economies of scale, these systems are impractical for companies that build fewer than 50 homes in a given year.
Several companies currently produce and market ERP systems. The largest producers include SAP, Oracle, J.D. Edwards, Baan, and PeopleSoft. Mark Hodges of New Jersey-based Hovnanian Enterprises said that the SAP brand system his company is using "is the most profound business change [they] have ever done." Hovnanian has divisions all over the country and, like many at the giant U.S. home building companies, Hodges believes that ERP systems "will absolutely change the home building process."
A primary function of the system used by Hovnanian is one-time entry of all data. This eliminates the very arduous task of entering the same data at so many different points in the company documents. Another key function is universal access by the company's personnel and trade partners. Currently being tested at Hovnanian's Four Seasons At Smithville (N.J.) community, the SAP system allows trade partners to look ahead two weeks in the production process. The trade partners are also paid electronically as soon as the construction superintendent for Hovnanian certifies via Palm Pilot that the work has been done. When asked how much costs were reduced with this system, Hodges said, "We are not going to tell. We will let the industry imagine what that might be."
An executive with a manufactured housing company is also enthusiastic about the system. Jay Wilson, chief information officer to Cavalier Homes, Inc., said the company realized that the key to retaining market leadership was an integrated ERP software system. No off-the-shelf solutions would do, however, because Cavalier needed what he called an extensive variant configuration capability to deal with the many options available to the homebuyer.
Cavalier chose SAP's R/3 software because "it was the only solution that had full variant configuration capability, plus the power to help us control our inventory carrying costs, improve customer service, and strengthen our financial management," Wilson said. Having made its software selection, Cavalier needed an implementation partner who could help create a custom solution from the ground up. The company chose Plaut Consulting because it heard of the consulting firm's solid track record creating R/3-based business solutions.
Wilson said the system, which was implemented starting in the fall of 1999, is already making a difference. "We can do profitability analysis on our production facilities, product series, individual products, and soon, on each customer. None of this was possible before R/3."
For builders with less revenue, Philip Schell, a consultant with Plaut, said his company offers standard templates for builders of different sizes. The same template can be used for different builders, provided they build about the same number of houses per year. Each time a home builder uses a template, Plaut charges a user fee.
The experiences of large builders like Hovnanian and Cavalier are what Freedman called a very recent development driven by the fact that ERP systems available through the major producers have become web-enabled, allowing integrated use from many locations. This is ideal for builders with operations in many cities and many states.
Something For Every Builder
For building companies that build fewer than 50 homes per year, there are some basic business practices that involve very little cost or effort to implement, but can make a substantial difference in terms of the bottom line. Taking a closer look at scheduling and cost control can be a good start.
There are many off-the-shelf software programs that can help with smart and efficient scheduling and other aspects of project management. The selection process for each company must be specific to its size and needs.
As discussed in the "Quality Matters" column of the Winter 2000 issue of ToolBase News, production builders across the country have improved their project management through even flow construction. This is another relatively low-cost, high-impact practice that is helping builders to cut build times and improve delivery rates. This practice, which establishes a steady and even pace for production, offers the benefits of factory efficiencies on traditional job sites. Slotting house starts sets the schedule for every phase of production. Even flow construction even helps to simplify office procedures.
In terms of cost control, tactics like optimum value engineering (OVE)—evaluating the least costly method of building without sacrificing quality or function—can be practical and effective for companies of all sizes. According to the publication, Basic Construction Management: The Superintendent's Job (4th Edition), published by NAHB's Home Builder Press, "Many builders who have implemented OVE—indicate that they have saved between $1,000 and $20,000 per home." Imagine how those savings can start to add up, whether you are building two homes a year or hundreds. This management guide, written by Leon Rogers, not only provides information on maintaining budgets, preparing and meeting schedules, and ensuring quality control; it also shows how to computerize your scheduling and reporting systems. It is available online at www.builderbooks.com or by calling (800) 223-2665.
From improved scheduling practices to customized software packages, the options are out there for building industry professionals to explore for their own business and project management. If you are an NAHB member and would like more information, contact NAHB's Builder Services Division at (800) 368-5242, extension 511.