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Industry Updates

How Residential Construction Companies Can Start Laying the Foundations for Their Future

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The emerging trend of building modules, components or even homes in a manufacturing facility prior to shipment to a construction site for assembly is expanding. (iStock/Bilanol)

As part of an effort to tackle the global shortage in affordable housing, the U.S. Department of Housing and Urban Development has announced a new package of emergency relief funding, released through the Coronavirus Aid, Relief and Economic Security act and totaling $472 million, will be awarded to eligible low-income families and individuals living in public housing. This and the backlog in moves occurring across June, July and August means that the U.S. housing market is showing evidence of a bounce back.

But experts warn of a ‘W’ shaped recovery curve caused by these moves followed by a decline in demand depending on virus resurgence levels and levels of employment. 

Homebuilders will therefore have to prove agile and respond quickly to changes in the direction of the market, especially as there is no way to reliably predict the impact external factors will have. A silver lining for the industry, however, is the fact that many homebuilders have made significant profits in recent years and are therefore in a better position to weather the current market climate by re-investing cash — future proofing their businesses in the process. Such practices can present openings to evaluate opportunities in modular construction as a means of scaling operations to lower, more predictable costs. 

Under Pressure!

Prior to the COVID-19 outbreak, the construction industry had always been faced with three prevalent market pressures. Poor productivity within construction processes is the first pressure on the market. Many homebuilders over-rely on excel spreadsheets and silos of information as measures of productivity. This approach often yields poor productivity and incorporates elements of project risk as information used to create such spreadsheets and influence decisions is often slow to produce, inaccurate and liable to manipulation. This often results in C-level executives not having strong governance or oversight of projects.

“Homebuilders will … have to prove agile and respond quickly to changes in the direction of the market, especially as there is no way to reliably predict the impact external factors will have.”  

Then there are labor shortages, a pain grown from a difficulty in attracting young, skilled workers into the trade has resulted in an aging workforce. The knock-on effect of this being an industry that now loses a vast amount of expertise and knowledge as experienced personnel retire. To counter this drain, the industry has increased the on-boarding of less skilled personnel as a way to reinforce the workforce, which in turn has a negative effect on build quality further down the line — while also limiting how quickly and the capacity of building of new homes. 

Finally, poor build quality, a subsequent knock-on effect of labor shortages, is a pressure which places considerable strain on the construction industry, both from cost and reputation standpoints. Poor build quality damages firms’ reputations, making it less likely a client will re-contract them while also potentially forcing a firm to incur high costs in correcting unsatisfactory work. Current statistics show costs incurred as a result of poor craftsmanship can be as high as 12% of total project costs and consume 11% of total project hours. 

Alleviating Pressure With An Offsite Approach

Perhaps one of the most innovative ways to alleviate the pressures affecting the sector is the adoption of a modular and offsite construction model. The emerging trend of building modules, components or even homes in a manufacturing facility prior to shipment to a construction site for assembly is expanding and with it so is construction of new offsite and modular manufacturing facilities. The trend is gathering pace so quickly that offsite is expected to become the new normal over the course of the next decade. 

On a geographical scale the uptake in offsite and modular homes is still in its infancy, McKinsey research shows Scandinavia is the most advanced region where 45% of homes are constructed through utilization of offsite methods. Japan falls in a distant second with 15% closely followed by Germany at 10%. Rounding the group are China 6%, Australia 5%, UK 5% and USA 3%, meaning there is a real opportunity for expansion.  

According to the McKinsley report, already a number of traditional home builders have anticipated the change and have diverted investment accordingly. The McKinsey report states, “40% of surveyed homebuilders said they were already investing in manufacturing facilities or were intending to do so in the near future.” 

On a more specific basis, several organizations are investing in modular manufacturing plants. Amazon is in the process of developing Alexa-enabled prefabricated/modular homes while Skanska has formed BoKlok, a modular homebuilding business partnered with IKEA. Others are going so far as to build 3-D printed houses and so it won’t be long until this technology starts to impact the market. 

Complete Control and Agility Needed on the Road Ahead

A change in the fundamental way in which an organization builds homes is not a simple transition for a traditional homebuilder that has used the same techniques and processes for a prolonged period.  

The altered process begins at the onset of the design stage, where the home needs to be either assembled onsite or built in a factory environment, aptly named DFMA — Design for Manufacture and Assembly. Construction organizations need to consider designs based on a configuration of standard components, while considering crossing part numbers, bills of materials, inventory, shipping and logistics, kitting, BIM integration etc. 

These processes are those that current traditional homebuilders do not follow, and construction workers still must manage projects using traditional construction techniques such as sub-contract management, retentions, variations etc. For success, businesses must become a hybrid of an engineer-to-order manufacturer, a construction company and even so far as a service business offering aftercare services to clients or homeowners. 

Support Software Lends Its Support

It is here a single Enterprise Resource Planning (ERP) should cover the imperative requirements of a shift to offsite/modular house building. Comprehensive ERP covering the breadth of the manufacturing and construction spectrum should link all vital information workflows and streams together, from engineer-to-order ERP for shop-based design and fabrication and financial controls for on-site work, through building information modeling compatibility. 

Support software should ideally include lean infrastructure tools. For instance, geographic system integration and compatible unit functionality will help organizations automate a large scale of utilities infrastructure design and construction. This in turn will drive down the monetary and time costs from green field real estate development initiatives. 

Powerful service management software capabilities are needed to permit homebuilders to provide property aftercare services, with the dual benefits of making revenue streams more predictable while increasing company revenues — in addition to a reduction of the impact of unforeseen market events like COVID-19 or cyclical downturns. This could span populating the full extent of work required into a schedule, pricing an annual or multi-year contract and automating compliance through use of service level agreements. 

Changes Necessary

Traditional homebuilders won’t be able to maintain their prime market position for much longer within the current environment. With new competitors who understand manufacturing, logistics, standardization and assembly on a comprehensive scale entering the market and challenging it to change, reacting means adapting to new principles such as offsite and modular construction. 

Technology such as AI, BIM and service management reinforced with integrated business software such as offsite-centric and construction ERP, are key tools homebuilders require to react in an unsure market. With this technological foundation, the next generation of homebuilders are ensuring they’re well placed to execute projects in large volumes, at the right costs and to the highest quality.

Kenny Ingram is vice president of engineering, construction and infrastructure for IFS.

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