THRIVING ON THE VELOCITY SIDE OF RETURN ON ASSETS®:
Since homebuilding is an industry that leverages equity with debt, the best indicator of economic return is some measure of Return on Assets. The expanded view of ROA presented in the DuPont identity makes it very clear that economic return has two components: Margin (reflected as Return on Sales) and Velocity (reflected as Asset Turn).
It says this: In order to survive – in order to succeed – homebuilders need to do well on both the margin side and the velocity side of ROA. How much can my company make on every house? How many houses can my company build with a planned, finite, and controlled amount of inventory and production capacity?
As a builder, consider this: if you generate a Gross Margin of 24% and turn your inventory twice a year, you will be outperformed – by a factor of more than two-to-one – by a homebuilding enterprise that generates a Gross Margin of only 18%, but turns its inventory four times a year; outperformed in terms of Net Income, outperformed in terms of Return on Assets.
And — you will struggle to compete; you will struggle to survive.
Operationally, it is a picture of the difference between a building company with 180 day cycle time and one with 90 day cycle time, and if that contrast is a bit too stark, then consider a more subtle scenario: That building company with an 18% Gross Margin and a 4x turn? It produces almost the same economic return as you would with a 24% Gross Margin and an improved 3x turn; it is a picture of 120 day cycle time versus 90 day cycle time.
In the face of clear differences in economic outcomes, note that the builders represented in these scenarios – you and your competitor – are exactly the same size, when the real, operable measure of size is the amount of work-in-process either has to carry; same resource overhead, same working capital requirements, same risk profile.
Homebuilding is relatively immune from any penalty that price elasticity of supply and demand would impose on prices in the face of modest, wide-spread, capacity-driven increases in supply. That is because homebuilding is essentially a build-to-order process, which regulates short-term supply.
So – it’s not a choice forced between either higher margin or higher velocity; it’s the challenge – and the opportunity – of doing both, of maintaining higher margins at higher velocity.
Yet, despite the obvious advantages, the demands of velocity – the demands of generating higher productivity – are so tough, require so much rigor, so much discipline, so much resolve, that most builders won’t attempt it.
And, therein lies competitive separation.
Pipeline workshops™ are a two-day immersion into the production physics – into the principles and disciplines – that enable homebuilders to thrive on the velocity side of economic return, that enable builders to thrive on the velocity side of Return on Assets.
(The understanding and expertise delivered in a Pipeline workshop™ pulls extensively from the best book on the subject: The Pipeline: A Picture of Homebuilding Production, Second Edition©.)
WHAT OTHERS SAY:
“The simulations were a brilliant way to demonstrate and drive home the significance of cycle time improvements and improving trade partner efficiencies on ROA and Net Income.” (Keith Porterfield, COO, Goodall Homes, Gallatin, TN)
“Pipeline workshops, through hands-on simulations and classroom instruction, provide excellent learning experiences to see WIP turns at different velocities, and the effects on Return on Assets. The principles and disciplines, if applied in the field by you as a builder, will increase your ROA.” (Scott Jagoe, President, Jagoe Homes, Owensboro, KY)
“I participated in the first-ever [Pipeline workshop™], spending two days exploring the ins-and-outs of production, inventory, and scheduling. It was quite intense, challenging, and not for the intellectually lazy.” (Scott Sedam, President, TrueNorth Development, from the April, 2014 issue of Professional Builder, “Taming the Chaos”)
“At the end of the day, running a successful business is about how much money you make on the amount of money you invest. The Pipeline workshop™ helped me understand this better than any workshop or seminar I’ve ever attended. I highly recommend it. This workshop was really eye-opening!” (Charles Roberts, Vice President – Operations, Providence Homes, Jacksonville, FL)
WHAT YOU WILL GAIN FROM ATTENDING A PIPELINE WORKSHOP™:
• a strong, visual image of a homebuilding production system – its purpose, its size, its cost, and its capacity.
• a simple, elegant, actionable understanding of how operating decisions drive business outcomes, and how the measures of operating performance connect to the business outcome measures of profitability and economic return.
• an ordered manner of thinking and reasoning – a set of mental models – about the relationship and interaction of the dependent parts that comprise a homebuilding production system, providing a systemic approach to solving production problems and managing finite production capacity, and a blended approach to process and project portfolio management that addresses the unique attributes and parameters of homebuilding production.
• a set of velocity accelerators – detailed information on tactics, techniques, and practices dealing with specific areas affecting production management – some immediate, some forward-thinking – all of which contributes to production systems with less variation and waste, fewer errors, shorter schedules, reduced build/cycle times, increased production throughput, controlled levels of construction work-in-process, and a savvier, more motivated, more mutually-accountable homebuilding team.
WHO SHOULD ATTEND:
Pipeline workshops™ are not about job titles, operational scope, or company size. They are designed for anyone charged with the critical, economic life-or-death responsibility of managing – or managing the interaction with – homebuilding production at some level of a homebuilding enterprise.
Pipeline workshops™ are for those who must understand homebuilding production and drive results, including:
- C-Level Executives – Presidents, CEOs, CFOs
- Division and Regional Managers
- Vice Presidents of Operations and Construction
- Vice Presidents of Sales and Marketing
- Production Managers
- Construction Managers
- Design, Estimating, and Purchasing Managers
Pipeline workshops™ are also recommended equivalent positions with building trade partners – for the manufacturers, distributors, suppliers, and subcontractors who must interact with builders in the value stream.
DATE AND LOCATION: March 20-21, 2019, at the Ponte Vedra Inn and Club, in Ponte Vedra Beach, Florida.
COST: $895.00 per person. Early registration (open December 3, 2018 through January 9, 2019): $750.00 per person; for team pricing, inquire here (firstname.lastname@example.org)
SPONSORS: BuilderMT and Specitup