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The Lean Builder: The “Perfect Storm” of 2015

Lean Building in Residential Construction

Scott Sedam is The Lean Builder. He was also a keynote speaker at our PARTNERS 2014 Customer Conference, where he vividly illustrated how lean building impacts a builder’s bottom line. (Constellation customers stay tuned, we will be announcing our 2015 conference soon!) Below, Scott outlines 10 questions that will impact homebuilders this year. Like a good scout, be prepared for an active 2015!

Scott describes the outlook for the homebuilding industry in 2015 as the “perfect storm” — with one helpful caveat. The outlier is the strong jobs market; the US has added a solid 750,000 jobs in the past three months of numbers. Not bad. Now, for the bad part.

Scott suggests all builders ask themselves 10 questions looking forward this year. We’ll briefly look at each of them below.

  1. Raw land? Land across the country is spoken for – or very expensive.
  2. Land development? Fuel prices are down, but all other costs are up: surveying, engineering, plot planning, legal fees, and of course all materials. Employing a land planning system such as LandDev can give you the visibility and automatic controls you need to tightly manage your land budget.
  3. Entitlement? Governments across the country are raising fees on developers (but not taxes!) to pay for infrastructure shortcomings.
  4. Trade labor? Yes, costs will increase. But becoming the “builder of choice” in your market(s) can drastically reduce this impact. Cash will only go so far this year – trades need to want to work for you. Learn how DSLD Homes became the builder of choice in Louisiana.
  5. Material? With your trades onside, what about your material suppliers? Trade shortages from 2014 will trickle down to material shortages this year. Just like with trades, suppliers benefit from a streamlined procurement process (and timely electronic payment!).
  6. Overhead? Human resources in the homebuilding industry are increasingly strained as builders look to hire new talent and experienced leaders. Overhead costs are up everywhere. Mitigate these increases with effective management, and allocate overhead to ensure profitability across the board.
  7. Financing? An improving economy inevitably leads to rising interest rates. When people compete for money, the price of money climbs. Financing programs, like LGI Homes’ Credit Counsel Program, can help your buyers find their dream home.
  8. Sales, Marketing and Advertising? Success = more marketing! From social media to your (new and improved) local Parade of Homes, sales and marketing will cost you more this year. Tight integration between your front-end website and sales center and your back-end management software can help.
  9. How many believe that the retail sales price will increase enough to cover increases in 1–8? If you think your sales prices can increase faster than the above costs, then you don’t have a problem. (Good luck!)
  10. How many of you believe that your profit will increase in 2015? Scott says: “Have a definite plan of action to help you find dollars you’re not finding today either by earning a higher sales prices or reducing cost, or both­—and that plan had better be specific and intentional with assignments and accountability established. Managing by memo such as strongly urging everyone to work harder and smarter and to stop wasting money doesn’t count.” Well said.

Data from 125 builders shows an average of $60,000 in waste per $250,000 to $300,000 home – that’s 20%! No builder can reduce all of that waste, but what if you could reduce waste by just 4%? Multiply that by your average home price, say $250,000, and you’re saving $10,000 per house. How many closings last year? 50? That’s $500,000 in profit.

Request a demonstration of how our solutions can help with these goals.

Original article via Professional Builder.
Scott Sedam is President of True North Consulting.

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