Surviving a Construction Downturn

Dan Blank -- Expert Business Source, 1/17/2007 7:32:00 AM

As reports stream in on a slowdown in the housing market, Construction Update looks at 10 tips for surviving an economic downturn.

1. Advertise More, Not Less
2. Learn a New Specialty & Exploit it
3. Expand Your Services
4. Train Your Employees
5. Focus on the Short Term
6. Cut Costs
7. Customer Satisfaction More Important than Ever
8. Convert Costs
9. Expand your Circle of Business
10. Negotiate with Suppliers

John Burns, a real estate consultant, suggests another way of surviving a down market:

“Look at your company with a clean state” and ask yourself if “you have the right team, assets, etc. for the next five years. Imagine you were brought in to take over the company today.”

Scott Sedam of Professional Builder asks this question: “Why do builders pursue actions that lead inexorably to lower margins and upset customers?” He offers several tips on cutting costs and greater efficiency in production:

• Over-production.
  The current downturn is driven in no small part by excess inventory of finished homes, and a massive finished-lot inventory exacerbates the financial stress. 
• Wait Time.
  On any building site you will see houses sitting idle more often than not. Even when there is activity on a job, it's not hard to spot opportunities for simultaneous work.
• Process Waste.
  Get a group together and start brainstorming all the mistakes your company makes over and over. The trick is taking action to prevent it.
• Transportation.
  Any movement of material that doesn't support production is waste. Trucks that average less than 20 percent full are a buried but astronomical cost.
• Inventory.
  In a perfect world, virtually nothing ever sits in a warehouse, on a lot or in a house awaiting installation. It is either being made, being moved or being installed. Our problem is that the cost of this is buried in the balance sheets of our manufacturers, suppliers and trades. The builder pays for every cent of it.
• Motion.
  Any movement of people that does not contribute to building a home is waste. Not confronting production glitches such as wasted trips simply guarantees they will continue — and continue to cost you money.
• Defects.
  Even many of the top-scoring builders on the J.D. Power and Associates survey routinely reserve 10 days to two weeks for rework and repair between "final" and closing. This is 100 percent pure waste and costs far more than the obvious supervision, carry costs and buried trade expense. What's worse: every trade involved in this quality charade performing rework is not building new homes.