Wednesday, October 24, 2018

The Promise of Vertically Integrated Modular Factories - Myth Buster!

Wouldn’t life for modular home builders be sweet if only the modular factory would not only build the house but also provide the crane and set crew to erect it and finish it completely.

photo courtesy of The Home Store

Several builders have asked me about this scenario over the past couple days and I even had one factory owner tell me he is seriously thinking about offering this option to his builders.

It sounds great but there is a dark side to this that needs explored. First, there are few modular home factories in the US doing this at the present time. These factories tend to be low volume selling less than 40 homes a year. Scaling that up for a factory producing 150 to 200 homes a year could prove disastrous if every builder chose this option.

For example, let’s suppose a modular home factory is producing 12 modules a week which equates to 3 homes. If the factory contracts both the crane and set crews that would only give them 12-13 days work a month. The set crews can’t live on just that amount of work so they will schedule work in the off days.

If the factory falls behind on delivery or there is rain every day like we’ve seen this year those set crews that turned down other jobs because they were contracted by a single factory may look for other work. Some factories are already supplying their own set crews from members of their production staff to try to eliminate this problem and it appears to be working for them.

Secondly the factory will need finish labor for each house. Looking at those 12 houses per month produced by the factory and assuming they could finish a house in 30 days, that may require up to 10-12 finish crews working full time for the factory. Remember these homes could be hundreds of miles from the factory in any direction.

I can’t imagine any factory finding 20-30 skilled finish laborers willing to work out of town 5 days a week every month of the year. Even if they could, what happens when production falls? Not only will the factory production line workers be laid off but also those 10 finish crews.

The only way this could even approach being a viable idea would be builders willing to sell standard ‘house plans’ provided by the factory. No customization allowed other than the factory options. If a builder’s customer didn’t want any of those plans, the factory set and finish option would not be available.

If that were the case the number of homes requiring that factory option would probably drop to one a month and that is something the factory could do but why would they want to for just one house a month. I was told you could build a modular home with only 7 phone calls. A clerical person at the factory could make those calls if there were no customization by the customer.

If someone in our industry could develop a complete factory based package for setting and finishing a modular builder’s home, either standard plan or customized, that would be the innovation modular single family home builders would love.

12 comments:

Steve Czarniewicz said...

Gary, most excellent idea. However you’d have to overcome the logistics and costs. Especially when the job is a couple states away. Have worked with one company that had their own preferred install crew in a rush situation. When the original installer turned out to be a big dud. Nicest way I could put that. However crane provided was local. Think that might be better option?

Jason Bussel said...

All American Homes set and finished their homes back in the day. It was an option that the builder could choose. Worked well for many, many years. Right up until the homes were made much more difficult to finish.

Anonymous said...

I worked for a company in the Northeast that provided set crew only...and it was a nightmare...if everything worked as planned and the weather held out and there were no problems getting the units on site on time...etc...etc...etc...long story short...company is not longer here...

Kevin Wilson said...

How about starting with a QC Inspector from the factory or independent rep ensuring all set instructions are followed and all interest are protected. In the end the inspector could list all of the items requiring modification/repair/etc. and hold all accountable to ensure completion and satisfaction by the homeowner.
Google reviews are both subjective and in many cases disingenuous given they are limiting in scope and not reflective of the whole industry. However, repeated similar statements of poor performance have merit to the industry as a whole. Start with a process that protects the industry and all of the parties involved in a single transaction.

Anonymous said...

We have hard time getting service crews on a timely fashion never mind crews completing the house that they will have to coordinate with local subs, utilities and numerous inspections and regulations. It would be great if it could be done. It is good to dream big.

Harris Woodward said...

Set only. No finishing. Everything is custom anymore, and codes are only getting more difficult and more local. Setting their own home will protect the factory from plenty of liability and warranty arguments should the project become a cluster on set day.

Unknown said...

Having worked for multiple companies in this industry; ONE of the companies did offer set crew, finish crews and a set supervisor to oversee other set crews. While this was an awesome way to control the quality of the finish and costs for the builder; none of them served as a profitable program if you look at just the dollars. What it does offer is the ability to perform service on the home while finishing the homes. Ironically you just did an article on how service or lack there of is a growing issue in the modular sector. The only things that were not covered by the finish crews was the electrical and plumbing hook ups. Those had to be done as well as hvac, before finish crews were even scheduled. I think the industry is going to see a need to review how it is conducting business and how we can position ourselves to look attractive to the builders out there. Freight costs, service and other items will need to be looked at and rethought in the next few years.

Anonymous said...

We've been doing complete turn-key homes including foundations in Ontario, Canada at a rate of 100+ homes a year for 30+ years.
We've evolved with changing codes and evolving designs and all sorts of weather and related issues. It can be done and profitably at that. Our industry needs to climb out of the dark ages.

Gary Pomeroy said...

Many years ago my company had a Southern California factory dedicated to exclusively produce modular homes for customers we developed. Factory production was approximately 300 homes per year. Our customers were tract builders. We had our own set crew which completed all of the installations. We scheduled our deliveries to minimize crane cost. We set from 6 to 16 modules per day. Our set crew made all of the water, gas, electrical and drain line connections between modules. No interior finish was provided. We did this for three years until union labor in conventional construction went away and we had no cost savings over conventional construction. One of my partners Nick Rocco is still in the set business today.

bill hart said...

re Ontarioian's comments above. They show, that if your dedicated, are really "for real" and yes, share your prosperity with your people..as you grow.. you can via VI, do total turnkeys,and along the way.. you'll win the consumers confidence with unlimited service! If you do. Your company can monopolize your corner of the earth. VIed yeilds no more finger pointing..I myself have lived in their rural-sub-suburb Ontario and ..know they ..are... for real....great job Mike and company eh! Bet its getin cold..ice on the minnnie bucket soon eh!

Richard B said...

Not always the case. In the northeast the cost is relatively the same as stick built. In my opinion stick framing wins every time. We simply do not have enough assembly teams who are willing to work on these box’s built in a factory.

John Higgs said...

Gary
We agree
We see an internet of things opportunity from the en of production line to completion of install.

I can see a market where all costs are captured in the unit of measure for the house sale being per SF or SM

This means finding modifying or inventing all the systems, process and assets to make it easy and therefore LEAN.

We have spent 2 years developing a shipping flat rack for the panelised market as once panels manufactured in house become fully finished we are now transporting decorative.

We have a long list of other initiatives we are yet to roll out to make our life post production easier.