Home Building: Business Priorities

In my firm we see this scene happen about 20 times a year. By late Thursday during one of our LeanWeek implementations, a builder’s Lean team typically has 150 or more improvement ideas drawn out on wall charts and recorded on a spreadsheet. When the team returns Friday morning to work on implementation strategy, it’s easy to see the panic on their faces. Their dilemma hits them: How do they attack 150 things at once? The answer, of course, is they cannot. So how do they choose? Step one is to draw a few breaths and find some perspective, so I challenge them to show me just one issue they put up on the wall during the week that is new. They never can because each issue existed long before the week began. It may be renamed or redefined, but it was there all along, sometime obvious, other times hiding in the background, but always resulting in excess cost, lost value, reduced quality, and/or wasted time. What changed is, with the help of their suppliers and trade contractors, the team has given each improvement opportunity a name and a metric, and gained deeper insight into its impact on suppliers, trades, customers, and the builder. Nothing whatsoever has been created that did not exist prior, but they can no longer forge ahead with an ignorance-is-bliss mentality. It is a huge step forward and quite a relief, actually, to get it all down and reach a deeper level of understanding. Still, the desire to try to solve every problem at once is as powerful—and dangerous—as it is compelling. The question remains, how does the team decide where to spend their limited resources?

Each company faces this dilemma on a weekly, if not daily, basis. There are always wants, needs, and initiatives competing for your time and attention. There are new people to hire, new procedures to create, new software to implement and, of course, the endless daily fires to extinguish. The late, great Stephen Covey, author of the 20-year best-selling business book, “The 7 Habits of Highly Effective People,” repeatedly warned about the “tyranny of the urgent.” The goal of Covey’s system was to learn how to spend most of your time working on the “important but not urgent” so you can think more clearly and devise better solutions. Of course, to get there you have to get the truly important and urgent items off your plate. That’s far easier said than done for most of us and no different than for the builder Lean teams we work with.

To help prioritize, the Lean team spends considerable time evaluating the ideas for dollar impact, degree of difficulty, resources required, and customer perception, among others. Out of the 150 items, perhaps 50 emerge as high priority. That’s progress, of course, but still causes frustration. Of these 50, as many as 25 will be relatively easy to do, requiring action from only a single department or trade and thus are assigned to one team member to follow-up on and complete. That helps, but it still leaves the team with 25 issues rated as high-impact and the typically huge dollars associated with them bring an inescapable sense of urgency. Now what? Enter a great management thinker with an unlikely background, Israeli physicist Dr. Eliyahu Moshe Goldratt.

Better known simply as Eli Goldratt, he became a preeminent management consultant during the ‘80s and ‘90s, introducing his Theory of Constraints (TOC) to the business world. Although his teachings were kept primarily to the world of manufacturing, they apply every bit as well (as we shall see) to any process that turns out a product, be it healthcare, farming, education, or home building. Anyone who has studied Goldratt—especially those who have read “The Goal,” Goldratt’s first book applying Theory of Constraints to the manufacturing process—will attest that an attempt to cover his work in a brief magazine article is almost laughable. However, we can extract core principles to help prioritize work that any builder or team can apply and benefit from within a few short weeks.

To accomplish this, let’s look at a gross simplification of home building in just five steps.

1. Lot Prep (delivery of a build-ready pad with undergrounds)

2. Foundation (whether slab, crawl, or basement, a foundation ready to frame upon)

3. Structure (wall, floor, roof, doors, and windows)

4. Mechanical (HVAC, plumbing, electrical)

5. Finish (insulation, drywall, paint, flooring, trim, exterior finishes)

Let’s imagine for a moment that today you are achieving 80 percent of capacity utilization for each phase except structure, which is toddling along at 60 percent. First ask yourself: Will it do any good whatsoever to increase the utilization of the first two phases—lot prep and foundation—from 80 percent to 90 percent? What happens if you do? A huge inventory of completed foundations piles up. No matter what you were taught in Accounting 101, inventory is one lousy asset to hold, as most of the builders in the U.S. learned in the last recession. If this company has highly stratified departments with individualized incentive plans, what is likely to happen? In short, absolutely no good can come of this.

Now let’s look at steps 4 and 5, mechanicals and finishes. With structure upstream running at 60 percent, what is already happening? The last two phases have a lot of people standing around, even if you do not see them on the job site. This in itself is one of the characteristics of a subcontractor-based industry like home building that is most misleading. We simply do not see the impact of our schedules and operating practices on the vast majority of our workers because, at any given time, only about 5 percent of them are on any single unit in production. Simply put, we have excess capacity downstream of the constraint, largely hidden, and because we do not pay for it, we fail to understand the tremendous loss incurred. One thing for sure, though, we know we shouldn’t do anything to increase the capacity in mechanical and finish, don’t we? Think about your own company, and it won’t take you long to find examples where you have done exactly that.

By Goldratt’s Theory of Constraints, structure (step 3) in this example is now established as the constraint in the system. This constraint happens to include framing and the vast majority of our industry faces this as an issue as we speak. The most practical insight we can draw is that it rarely (Goldratt would say never) makes sense for the organization to work on anything that does not increase the capacity of the primary constraint, wherever you find it. There are several ways to remedy the constraint. The most obvious is to increase the supply. Hire more framers. Yet we all know it’s not that simple because they are scarce and the price is going up. And when you find them, they don’t know your product and plans. Another approach is subassembly such as panelization as a way to increase capacity, although the ability to do that varies dramatically by market. The harder but usually more productive route is to find every barrier that inhibits the capacity of the constraint. A Goldratt TOC purist, in fact, would subordinate the entire organization to the single goal of increasing the capacity and performance of structure. New software? Only if it enables the framers to work better and faster, as a Builder Information Modeling (BIM) system might. New design center? Only if it somehow simplifies or makes options more clear, resulting in less confusion in the plans and specifications. Bring on a new draftsperson? If that helps get site-specific plans done and eliminate mistake generators such as building from mirror image plans, then do it.

Before you rush back and review all of your goals, initiatives, and myriad improvement ideas, first stop and review that process map of your entire building process that you did awhile back. You have done that, haven’t you? Study it a while, preferably with a cross-functional group of key staff. Which element is your No. 1 constraint today? Establish consensus on that, as challenging as that may be. It could be an internal process such as your purchase order system or option pricing, a field process such as city inspections or a shortage of masons, or an external process such as permits or even sales. But no matter how many you see, according to the Theory of Constraints, only one is the greatest current bottleneck, producing tremendous waste both upstream and downstream. Identify it. Measure it. Understand it. Now line up your improvement initiatives with that goal and eliminate it. Guess what? By definition, your biggest constraint has moved to another step in the process. So go find it and repeat the process—forever.

After running Lean teams through this exercise, the light bulbs go on. It gives them permission to not do something that looks very important—and it is—but it is not the primary constraint in the system. Why would you want to work on anything else? Well, of course I am about to make this just a little bit more complicated for you, because home building is rarely the beautifully organized linear process we’d like it to be. It is more of a vaguely linear series of simultaneous projects. Yet Goldratt’s lessons still hold. Imagine it like a bicycle that you cannot quite get up to full speed. Give it a thorough analysis and you see a dirty chain, warped rims, well-worn tires, squeaking brakes, frayed cables, and sloppy, out-of-line handlebars for steering. Perhaps even the engine (you) needs a tune up? OK, Dr. Goldratt my old friend, tell me now what the No. 1 constraint is. It can be done, but it takes some deep thought and analysis. For example, we are all about to settle on the warped rims as the biggest constraint because they severely restrict speed, when someone plays the trump card called steering. Do you really want to increase your velocity without your handlebars aligned with the rest of the bike? Home builders frequently do exactly this, and it’s a poor choice.

As my friend and home building’s leading teacher of TOC, Fletcher Groves, would quickly point out, there are countless nuances to Goldratt’s teachings. A key caveat is that you actually do have to build a work-in-process buffer in front of the No. 1 constraint, so that given its current real capacity, it never ever runs out of work. In our first example above, with structure running at a marginal rate, you better always have foundations ready to build on. The results are already bad enough downstream to ever allow structure to drop below 60 percent. (If you love this stuff as much as I do, go to Fletcher’s website saiconsulting.com and sign up for his next Pipeline workshop, but go well-rested with a fresh and open mind, because a detailed study of TOC will leave you with a major brain ache.)

Without getting deeper into the Theory of Constraints, this essential principle can help you sort out your priorities whether you are responsible for the design center, a single department, a field project, or the entire company. Look hard at your process and understand the biggest constraint, the one currently holding back the results you need. Now focus the majority of your efforts to eliminate that constraint. When that one is fixed, find the next one, and give it the same effort. At the end of the month, quarter, or year, you’ll discover you got a great deal more done by taking things one constraint at a time. PB

Scott Sedam is President of TrueNorth Development, an internationally known consulting and training firm based in the Detroit area. Scott welcomes your comments, questions, and feedback at [email protected]. Find Scott’s LeanBuilding Blog on www.ProBuilder.com or www.TrueN.com, where you will find archives of past articles. You can also join “The LeanBuilding Group” on www.linkedin.com.