Monday, February 26, 2018

Modular Construction at a Major Crossroad

As more builders, developers and customers begin using modular construction instead of just thinking about it, the existing modular housing industry is being pushed, pulled and thrown into a new reality.

Too Much Demand!

How can that be a bad thing you ask. It can if there are no new modular home factories being built right now and few on the drawing boards. The real culprit here is the 2008 housing recession when dozens of modular factories closed their doors forever and many small modular builders and subcontractors abandoned the business, never to return.

About five years ago the media began once again touting the benefits of modular construction which opened an entirely new customer base. Hotels, college dormitories, taller multi-story apartment building, retirement homes, more demand for single family homes and let’s not forget the Hurricanes, fires, floods and affordable housing projects over the past 6 years.

But all that new business coming into the existing modular factories, both residential and commercial, simply allowed many factories to get back to the capacity they had prior to 2008.

Now full capacity is not enough. Between big modular projects practically falling in the front door and the builders having a terrific year, there is no more capacity to be had forcing many, even commercial modular factories to have lead times of 10 weeks or more.

Good problem to have?

Here a couple of problems that are occurring right now in our industry and it won’t get any better when Spring and Summer get here.

Builder and Developer Complaints

There are two major types of complaints facing the modular factory. First, there are builder complaints about the lead time to get modules built and delivered to the job site. Even if a factory is at capacity, it doesn’t want to turn away business so they continue to take orders and deposits for work they know will stretch their production schedule out further.

Secondly, in the rush to at least try to increase production speed shortcuts are taken and modules can be sent into the ‘yard’ to wait for special order windows, cabinets and other materials that vendors couldn’t supply in time.

Overworked and Stressed Out Workers

In some cases overtime is becoming mandatory which isn’t really too bad in the winter but spring and summer are just around the corner and if there is mandatory OT now, what will it be like later in the year.

Not only are the production people beginning to feel the stress, the sales department is also falling to an overload of builders and developers relentlessly calling asking when their modules will be delivered. In reality nobody can give the builder a real time for delivery until the module is complete and just about ready to ship.

Suppliers Can’t Keep Up

Lead times from the vendors and suppliers is growing as well. The days of getting custom windows from a vendor within 2 weeks is over, replaced with a longer lead time that has to used to calculate when the completed module can leave the factory’s ‘yard’.

Quantity vs Quality vs Price

Remember the old saying “You can have great quality, low price or quick delivery. You can choose two out three.” Today it seems you can only get one out of three.

Where Are My Builders?

Builders are only loyal to a factory as long as certain things remain in place. Good pricing is one, short lead times and few service problems are some others.

What is happening today are builders and even large commercial developers not getting one or two of these things as they expected and then shopping their plans to every factory. And of course, those new factories would never stretch the truth about delivery time, quality or price……. They just want to add that builder’s business to their income statement.

What is the Dilemma?

Many established modular factories that don’t have enough capacity and/or labor and are beginning to look at expansion. That takes a major investment in money, talent and time which most companies including modular factories don’t have in abundance.

But doing nothing invites the disruptors. Foreign owned modular companies like Toyota, IKEA, Polcom and others are waiting offshore for the right opportunity to open US factories. Most pay better and are more innovative than US modular companies.

For the most part they really don’t want the custom side of our industry instead focusing on multi-family, multi-story projects and tract home developments. And that’s where the real growth is happening.

The dilemma….do the established US modular factories simply try to ride out this huge wave of demand hoping that it will end in a couple of years and go back to a more manageable level, or do they rush into expansion by building or buying capacity or do they simply fold under the pressure and stress of not being able to keep their builders.

Come back next year February when some of this dilemma will have worked itself out.


NYBuilder said...

While I understand the sentiment here, i think the worst thing anyone in this industry can continue to do is blame the 2008 recession. Yes, it lasted a couple years. Yes, it took a lot of really solid builders and manufacturers out of the market. Yes, it forced banks to tighten up too. You know what else it did? It thinned the herd and made those that survived stronger. It also forced the survivors to use some new ideas, talk to new people, and make wide ranging changes that would not have happened if builders and manufacturers had been able to stay wealthy, fat, and happy.

Now, as we enter another downturn...don't fight me, it's coming...let's see who's learned lessons from that recession and let's see who's still blaming it. Those who've learned lessons will be around through the next one and those who have not, will not. Very simple.

Josh Margulies said...

I think your being a bit myopic Gary. Things are never all over bleak nor all over golden. Demand is dealt with the old fashioned way — you pay to play.

I’m not certain there is such doom in the future. The ARE trade schools and the ARE licenses and certifications for contractors and carpenters. There are far worse ploblem to have then over abundant demand.