Thursday, May 20, 2010

MODULAR HOUSING’S FATAL FLAWS

The comments over the past several weeks about poor sales and slow recovery by the modular home manufacturers has been both honest and in some cases downright nasty.  At first I looked at these comments at face value but two underlying themes started to become evident.

First theme, there doesn’t seem to be any place for factory management, sales reps or builders to freely express themselves about their hopes, fears and disillusionment about our industry.  That is becoming noticeable in many of the comments.  I will continue to post all comments relevant to our industry to allow these people to have a forum.

The second theme is the most dangerous to our industry.  From what I have been reading in the comments and from my years of personal experience in the industry, modular home manufacturers set themselves up for low sales or failure.

fail

I know, what a radical statement to make.  Most factory owners have big homes, go on great vacations, some have airplanes and I heard one is even buying a helicopter and many have lots of money in investments but the truth of it is that their factories are running out of steam.  How can our industry improve our market penetration when our advantages over site built homes are hidden under a self imposed blackout?

Let’s start with one of the biggest problems.  Site built home builders are at a huge advantage over modular builders.  Compare what they are capable of doing to the the British and American soldiers during the Revolutionary War.  The Red Coats (British soldiers) had to march in straight rows and columns, were brightly colored uniforms which made them easy targets and they had to fight thousands of miles from home.  Modular factories (Red Coats) are centralized and their soldiers (sales reps) have to sell many miles from home.

The American soldiers on the other hand were able to hide behind rocks and shoot at the Red Coats, live off friendly folks in the neighborhood and replenish their supplies quickly.  Once they fully understood this, the tide of war changed and as they say, the rest is history.

Keeping that in mind, let’s look at the independent home builders that the modular factories try to target.  They are usually prejudiced against modular homes for the same reason prospective home buyers are…they equate modular with double wide trailers.  They have a loyal group of local subcontractors and suppliers that will help them with discounts and better pricing if they threaten to leave them.  Site builders usually work off their kitchen tables to start and their offices are in their trucks.  How cool is that! That is how I started in the ‘80s.

Now enter the modular factory.  When a factory is built, it has a capacity of 10 to 40 floors a week.  If the average home is 3 modules, the factory, at maximum throughput, can produce 3 to 13 homes a week.  Remember that is the maximum number of homes.  The question now becomes, how does a factory keep running at capacity and what happens when they reach it?

To reach the big numbers, the factory must have a great sales team led by a Sales Manager who not only inspires greatness in his/her sales reps, they also have to be the head cheerleader and chief problem solver.   Their sales reps have to be attentive to their current builders and become indispensible partners in their business.  At the same time they must continually search and acquire new builders for the factory by introducing the advantages of modular construction.

If the Sales Manager is great and the Sales Staff is terrific and everyone does their job promptly and correctly, the factory will overrun weekly capacity and the backlog will be climb out to 13-40 weeks.  Then management will tell their reps to slow down until we can catch up or better yet, they hope a couple of them will quit and look somewhere else for a job.  It’s a cinch that the owners can’t put up another factory just in the hope that business will continue at this pace.  Fatal Flaw!

Sales Managers and Marketing Managers that have low budgets are doomed to mediocrity.  They try to do what they can with what is given them but it’s tough.  There is little or no money for properly training new salespeople or for the continuing education of the existing staff.  A weekly sales meeting or a conference call going over disappointing sales numbers is not training.  So how do factory owners think they can get sales from poorly trained sales people?  Fatal Flaw!

The factory owner looks at the sales report and says “We need more project sales!”  Then an all out push is made to compete against all the other factory owners that are fighting for the same projects.  This means lower margins and factories clogged with commercial work to the point of pushing that little 2 box ranch for the newest builder back another 8 weeks.  This problem happened to Excel Homes recently and their solution is to reopen a mothballed factory just to build these low profit projects.  Fatal Flaw!

The biggest problem facing our industry is the small home builder that is the backbone to the factory’s success. These small builders that have never used modular construction before are the life blood that needs to flow in order for modular housing to become a bigger part of the housing industry.  Sales reps are told, or should I say required, to ferret these “new to modular” builders, meet with them, convert them to an entire new way to build homes, teach them how to manage the difference in costing and make sure they remain loyal to the factory. If you find more than 3 of these types of people in the ENTIRE industry, it would be a miracle! Fatal Flaw!

Builders are usually contacted through telephone cold calls or through the factory website, sent a packet of information and maybe, just maybe, somebody from the factory will follow up with them.  Fatal Flaw!

I could go on and on about many other fatal flaws but until the industry starts thinking how they can reinvent themselves, we are doomed to repeat history.

14 comments:

Anonymous said...

Well said! however I would add that the modular industry could also work in concert with local home builders! Convert them into the modular way of thinking.

Anonymous said...

Way to go Coach! I was approached by a modulare salesman from a factory in PA about a year ago and was greatly disappointed in what I was told.
After reading this story I know why. He was not prepared to help me understand what I needed to do make the change. All he kept saying was that it would save me money which I highly doubted.
I am emailing you to find out if you could give me a good reason to look at modular again. look for it.

Anonymous said...

Coach. Your argument makes some sense. But I think you're missing the bigger issue, SIZE. Why does a manufacturer have to set themselves up to build 5 - 10 houses per week with a geographic reach of 500 miles? As an (anonymous) owner of a smaller modular plant, I'd say we're quite happy (and profitable) building 1 - 2 houses per week. No fancy Sales Managers, Sales Reps, Outside Sales, Directors of Marketing, etc. You call us, you talk to an owner. It's a satisfying way to work and gives a better product to the customer.

Anonymous said...

Coach, well written and to the point!! We need more of this straight shooting but I am afraid those to whom it is intended will not pay any attention!
As written by Anonymous2 modular sales reps are not prepared to feature/benefit why a builder should switch to the viable modular alternative. All the training they get is how to write an order and then hopefully how to price it. However, from experience I can tell you most of them cannot price changes requested by the buyer which means someone in the office must prepare a quote and now the sales rep has to go back to the purchaser and tell him whey the price is much higher than the "standard model". This is why you had ProBuilt writing they play the pricing game. But, that has been their style for many, many years. I can tell you I have had builders relate that sales reps will ask what such and such modular company is quoting and then their close for the sale is "we will price it to you $1,000 less than anyone."
I have written several posts on this blog about sales, sales reps and sales training and you did a good job in summarizing all in your post coach. I think many of the modular companies would be well served hiring you to train their sales teams. Or, what about holding a sales training seminary on how to really market and sell modular homes. I am not talking about a seminar of the ilk of the one guy in the industry who fashions himself as the sales guru, but real down to earth how to physically sell modular products on a face to face basis. How to develop a winning distribution network. How to withstand raiding of your distribution network. How to develop a win-win relationship with your distribution network.

Anonymous said...

Anonymous3, I think most people who have entered the modular industry have done so out of poor planning. They fail to do a feasibility study to determine their market which will tell them the size of the plant to build, but more importantly if they should build a factory. Many times new factories should not have been built but were done so by arrogant owners who think they know more than anyone else about the industry, but equally as arrogant feel they have a following in the industry. Truth is there is little loyalty within the industry as far as purchasers. And NO ONE CAN FAULT BUILDERS WHO BUY. They switch because they get little LOYALTY from the manufacturer. When manufacturers establish a builder in an area I think they owe this builder some loyalty. But most will sell someone next door to him because they need the business. They only look as far as the end of their nose and this philosophy has cost them dearly.
Plus, there is something to say about small botique factories who can cater to custom market needs. Small plants can do much more than large ones who must have volume to survive. They are true functions of sales volume where small botique plants generally can charge more for their products due to the degree of personal service and custom ability. I see many profitable operations today that are no larger than 60,000SF. And in todays market that is a good sized plant that can produce 4 or 5 modular units on a daily basis, which is good dollar volume and good profit margin.

NY Mod Builder said...

I agree with Anonymous 4. The very people that need to read coach's story about modular home flaws are the very ones that will scoff and say that it does not apply to them.
I don't know coach but if he has this kind of insight and can write about the flaws, maybe the factory that follows his advice will hire him to correct them.
As a mod builder I would love for him to work with my factory.

Coach said...

Thanks for the compliment.

I'll keep trying to get everyone to know the advantages of system building.

Jonathan said...

I believe everyone should create their own success. As a builder, if your plant does not give you what you want who's fault is it? I have sat with the owner of Signature building systems and have very successfully designed homes built to my market and more importantly my customers. We have both improved tremendously over the years. We had hit bumps in the roads and grown through them. Find a plant to partner with long term and develop the relationship. Site builder who do not realize the benefits of modular construction deserve to loose customers to the modular builders. Simply put, they can not compete on time, cost, and the cost of quality. Marketing modular construction is alot easier and more successful than being just another site builder. However, if one has been a site builder for years the chance of conversion is slim. Modular construction should be marketed to business men and not site builders. This is a revolutionary mind shift. Market to business men who run a business to make a profit. Coach, you are a very learned man and modular man. You have learned this business and how to read between the lines. I remember your blog about "read something" However as I have stated in the past, most people are not smart enough to learn. An old favorite expression is listen to learn and learn to listen.

Anonymous said...

Jonathan seems to have a great working relationship with Signature Homes but it took going to the owner of the company to get the houses he needed. He did not mention his sales rep.
I don't have that kind of relationship with my factory. I still have to go through my salesman and that can be quite trying some days.
I doubt that your factory's owner would have any problems dictating what you wanted to his employees but try using a saleman again and tell me if you see a difference.
I'm betting you would look for another factory like the rest of us do.
Coach brought out some good points but I didn't see any solutions from him.

Anonymous said...

When one has to deal directly with the modular owner there is a problem within that organization. Why did the owner have to supplant the sales and engineering departments. The owner might as well fire those people as he has not made them useless to Jonathan and he has pulled their team in dealing with him. If he now has a problem he will go straight to Vic and not even given his employees and opportunity to solve his problems.
What this points out is what Coach and others have been blogging - YOU MUST HAVE A PROFESSIONAL SALES TEAM - people who know their products and how those products will benefit the buyer. I dare say Jonathan has told me Signature like others is stuggling and willing to do whatever it takes to write orders -- irrespective of how it destroys their sales department.

Sam T said...

What is a professional modular sales team? I have yet to see one from any factory and I've been in this business over 20 years.
I've found that you must have at least 3 factories that you are approved with at any point in time in order to get good pricing and answers on time. And even houses for that matter.
Over the years I've had more than 50 salesmen call on me and all but 2 were worthless. You could tell they were ill equipped to help me.

Anonymous said...

Sam T - unfortunately welcome to the real world of modular housing. As I have written before: We have identified the enemy and they are us!

Thom said...

What happens to service ?
All manufacturers need service.
When a company changes ownership does service end ?
My feeling is if they cant do it right the first time why bother.
Now I will make it right.
Customers don't like strangers.
It sends up a red flag for faulty workmanship if the manufacturers truck is in the yard .
They had their chance in the factory.

Rod Dumas said...

I was a modular home builder 1987-1989. I knew new nothing about building but after seeing one thought it was a great idea. I had a great friend who was also an architect. Together we custom designed and sold over 70 homes in a A two year period, often modifying factory floor plans up to 3500 sf. Excel homes were very high quality and our customers were 100% satisfied. I set up a model where people could actually see the quality. Site work was done and ready for the product which was always delivered on time. Weather was never a factor, never had to worry about materials disappearing as the houses could be locked after setting the home on the foundations . Would still go modular if I was in that industry and could find the right factory. Home owner can save money!