Building profits with Lean construction

No builder would deny that controlling costs is a key, if not the key, to profitability. Few are aware, however, of just how much waste is costing them. Lean construction, a variation on Toyota’s revolutionary production system, gives builders a comprehensive strategy for uncovering and eradicating that waste.

“Lean is the relentless pursuit, identification, measurement, and reduction of waste of all kinds in products, processes, and plans, anywhere you can find it,” says Scott Sedam, president of TrueNorth Development in Northville, Mi., who teaches Lean construction to groups in the U.S. and Canada.

Contrary to what many believe, Lean is not just about saving a buck – it’s about delivering better value for the customer’s dollar in an environment where costs keep rising.

“We strongly understand that we have to show value in everything that we do, from a $10 million house all the way down to the $100,000 reno,” says Bob Deeks, president of Whistler, B.C.-based RDC Fine Homes, which practices Lean methods.

Much of Lean is common sense. “We already had a really strong focus on process and getting things done in the right sequence,” says Deeks.”When we discovered the Lean language 18 months ago, we realized right away that we had been on our lean journey for four years.”

Lean provided the framework for collaboration. “One of the things that first engaged us with Lean was that the language is a very effective tool,” says Deeks. “It provides structure for engaging the team and doing things better.”

Sources of waste

There are many kinds of waste in construction, but the most common is unnecessary delay. Lean calls this “waiting” because the work in progress, the home under construction, “waits” for the productive work to continue. Scheduling problems, rework, change orders, and poor communication are typical contributors.

A common mistake is to play the blame game. “People who understand Lean realize that waste isn’t about dumb people doing doing dumb things,” says Sedam. “The source is how the company is managed and the systems and processes under which people work.”

Lean provides a frame of reference for countermeasures that range from ensuring that workers have the right tools and training to devoting more resources to planning and scheduling. The best builders, Sedam says, have their schedules ironed out months before construction begins, with all trades in agreement on timing and expectations.

“Don’t call a trade on Tuesday and say ‘be there Wednesday.’ That’s ridiculous,” says Sedam. “If you want to attract the best trades and keep them, scheduling is job one.”

Plans are key here – Sedam notes that when builders bring drawings into his workshops, it is common to find 75 or more errors or significant improvement opportunities. “If you’ve got lousy plans, it’s very hard to say on schedule, because there are constant phone calls and changes to mistakes you’ve made,” he says.

RDC uses Last Planner, a production system promoted by the membership-based Lean Construction Institute, on all its projects. Last Planner provides a framework for setting targets and expectations in consultation with all trades and suppliers, beginning with the required completion date and working backwards to the start. This makes schedule performance highly predictable – Deeks reports that the results have been extraordinary.

Predictable scheduling also means fewer deliveries for suppliers and trips to the building sites for trades. “We have cold hard data showing the typical building materials dealer makes an average of six to seven trips per house more than if everything was right from plans to takeoffs to schedule,” says Sedam. Eliminating these wasted trips, he notes, makes the supplier’s business more profitable, building loyalty and increasing the odds that they will come to bat for you when you need them.

Lean teaches us that relationships with suppliers are essential to controlling overall costs. Builders, therefore, should avoid the common mistake of relentlessly shopping for the lowest price. “The only thing that buying on bid price alone guarantees is that you will never operate by lowest total cost,” says Sedam.

The Lean jobsite

Visitors to an RDC site office will notice a large whiteboard showing daily and weekly goals, milestones and other progress indicators. “This is more what you would expect to see with a large commercial project,” says Deeks. The point is that with Lean, all employees have ownership of the project goals. And transparency is essential.

The jobsites themselves are uncharacteristically tidy for a homebuilder. RDC creates order through a variation on Lean process called “5S,” in this case, an acronym for “sweep, standardize, sort, safety, schedule.”  Orderly sites not only look better, but are safer and create a less error-prone work environment, which translates to less re-work.

“We’ve worked very hard to create a culture where you clean as you go,” says Deeks.

Instilling a culture requires constant mentoring from senior management. Deeks and his senior managers, consequently, spend a lot of time on job sites.

“It’s super disruptive for me to get to a site at eight in the morning,” he says. “I have two young kids who need to be off at school. But it really brings a very different energy to the site when the owner shows up at five to eight and picks up a broom and helps them clean the site.”

Worker buy-in is also key to a safety culture. “We have a safety committee that meets once a month,” says Deeks, “and we’re always looking for ideas. I think the transformational cultural changes have been the result of the guys bringing their ideas forward.”

Lean is a significant investment, but Deeks feels that it is well worth it. “When I retire, I want my business to keep going,” he says. “But we can only do that if I create a really strong foundation and strong culture that will carry on.”