Simplex Open House

Tuesday, August 15, 2017

What’s Next for the Modular Industry in the US?

This is the third article from Tom Hardiman, Executive Director of the MHBA, about the Chicago housing deal that will bring 20,000 modular housing units to the city but built by foreign investment and foreign factories.

In my first two articles about the proposed Chicago deal to build 20,000 housing units, I expressed my frustration that City leaders chose a foreign company over the dozens of nearby modular manufacturers.  I also expressed my frustrations over excessive regulations that hamper the growth of existing manufacturers.  But competition and regulations are reality in our business. The real question we need to be asking ourselves is this:   What can we as an industry do to better position ourselves for future opportunities?

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I am 100% absolutely certain that modular construction will be much more widely adopted in North America than it has been in the past.  When leading companies like Marriott, Google, Amazon, and Starbucks start embracing modular, you can bet it will catch on.  

McKinsey Global Institute (MGI), one the world’s premier business consulting firms, cited deployment of modular construction as one of their five ways to close the housing gap in California.  In fact, MGI stated that using modular construction would save California $100 billion over the next eight years.

The interest in modular construction is here!

Why then, aren’t more people using it?  There’s a question I get asked a lot.  I think a big part of the answer is that the industry is largely regional in nature.  Sometimes a market (like multifamily) gets hot in a region where there simply are not many modular factories who can (or are willing) to service that area.

The modular manufacturing base is primarily located in regional “hubs” across North America including in places near Harrisburg PA, Douglas GA, Elkhart IN, Dallas, TX, Riverside CA, and Calgary, Alberta. But the multi-family housing needs are in places like Chicago, Philadelphia, Boston, San Francisco, and Vancouver.

Transportation costs of the modules are often a limiting factor in determining service area.

In order to expand the service area, we must find ways to reduce the costs of transportation, or alternatively, reduce other costs to offset transportation.  Those opportunities exist within the factories by gaining efficiencies through more automated processes, streamlining production steps, and improving the work “flow.”  Implementing new technologies and communication strategies that make it easier for your customers or builders to understand your products is another “under-explored” area within our industry.  Manufacturers must continually be looking to improve upon their efficiency.

We can also address added costs that result from excessive regulations.  The industry as a whole needs to actively and aggressively push back on new regulations that target our industry and add no value or safety for the end user.
 
Regarding industry government affairs efforts, I’ve heard it said dozens of times from many companies - “that issue doesn’t impact my business so I’m not interested.”  If the industry has an issue in Maryland, for example, every company needs to be concerned, whether they do business in Maryland or not.  An attack on one of our companies is an attack on all of us!  We need to bring the full weight of the industry to the table at each for each and every and challenge we face and speak with a unified voice.

In many of these cases, it’s not the distance from factory to site that matters.  Often, the manufacturers within a particular region may or may not have the experience or interest in building for that sector of the market (multifamily, for example).

Business owners need to be regularly scanning their environment, identifying new market opportunities, and investing in market research and analysis.  In short, the industry needs to have an insatiable appetite for learning. But beyond this, industry participants must be open to the POSSIBILITY of changing their own business models to pursue new opportunities (easier said than done, I realize!).

These are fairly high-level recommendations that can easily go overlooked by readers.  

So, I will boil it down to a list of more tangible items the industry needs to focus on if our goal is to grow market share:
  1. It’s hard to speak with a unified voice when many companies in the industry are not supporting their respective trade associations!  MBI serves companies engaged in commercial modular markets (education, healthcare, retail, administrative offices, institutional facilities, hotels).  MHBA represents the single-family home market.  If you are a modular manufacturer or contractor/builder, or a company that supplies services or materials to this industry, you need to join one or both of these organizations!  If you don’t like the direction these organizations are heading, join, get involved and make your voice heard, rather than criticizing from the sidelines.
  2. Both groups have services in place to help fight excessive regulations.  But we don’t always hear about issues when they first arise.  Believe it or not, the state agencies don’t inform us of what they are doing behind the scenes.  We are counting on companies being our eyes and ears in the field.  If you are having regulatory issues, let us know about it.
  3. MBI has its “Seals” program whereby manufacturers are asked to acquire one $20 seal (label) for each commercial module manufactured. The funds from this voluntary program are earmarked to address government affairs issues and to further promote the industry through greater marketing efforts.  Only about half of MBI’s manufacturers support this program.  As a result, the funds and actions we can take are obviously limited.
  4. MHBA implemented its Consumer Awareness Program (CAP) about a year ago. We ask all manufacturers to voluntarily add $10 / single family module manufactured.  Those funds are earmarked exclusively for marketing and promotion to potential home buyers.  Only eight of MHBA’s manufacturer members currently support this effort.
  5. There are all sorts of learning opportunities available for the modular industry. Some of which are hosted by the above-named groups and many by other organizations such as the NAHB’s Building Systems Council, or the National Institute of Building Sciences Offsite Construction Council.  I understand that training is time consuming and sometimes costly for many companies, but what’s the alternative?  Manufacturers must embrace a continuous improvement mentality and an appetite for learning as much as they can about new technology, processes, skills, markets, etc.

More quality projects delivered!  The best thing any company in the modular industry can do is to deliver a quality project – be that a home or a hospital.  

We try to showcase our best projects through various outlets and always need more case studies.  For single family homes, the easiest path is to enter your project in MHBA’s Home of the Month contest.  For MBI, we use Awards of Distinction entries year-round for our marketing efforts. Make sure to get your projects in for consideration.


I think we have many pieces of the puzzle readily available for this industry to take off.  
But like any puzzle, it’s hard to complete without looking at the bigger picture to see how all the pieces go together.  And it’s impossible if some of the pieces are missing.  

1 comment:

Harris Woodward said...

Tom, keep shining the light. You have a sharp eye for what's possible and ways to get there. My hope is that you forward-thinking ideas will sink in. One at a time.