Posted by: JC Gatlin | March 28, 2010

Forced Cost Reduction is not Waste Elimination

In the attempt to reduce construction costs, there will always be a tempting, easy, and immediate solution: Require the trades, vendors and sub-contractors to reduce their pricing by a given percent. If they don’t, replace them with a new company that offers cheaper pricing. This is called “Forced Cost Reduction.”

Cost reduction is not the same as waste elimination. Forced Cost Reduction in fact violates the “partnership” between the Builder and the Trade, which is essential for both company’s success.  Partnership means eliminating waste together, so both the builder and the Trade benefits — that’s why we refer to our Trades and subcontractors as “Building Partners.”

This partnership is successful when the Construction Professional and the Building Partner:

  1. Go through standardized work instruction sheets and hot spots together
  2. Review First Time Quality notes together to eliminate delays & corrections, and improve jobsite readiness
  3. Commit to eliminating return trips, dry runs, and punch lists, together
  4. Walk material deliveries together to improve take-offs.
  5. Walk homes under construction together to review blue print corrections and improvements
  6. Negotiate fair market pricing

Cost reductions to competitively realign pricing with a down housing market is simply a reality of business. The cost of building the home can’t go up when home prices are falling. But cutting a long term, quality Building Partner’s pay by a few hundred dollars must be first measured against the number of opportunities to eliminate waste on the jobsite. And, Forced Cost Reductions are never an acceptable answer.

A true Building Partner – as opposed to a trade, vendor or sub-contractor – deservers to be compensated a notch above fair market pricing. However, a true Building Partner relentlessly pursues and eliminates waste on the jobsite and in the construction process alongside the Lean Construction Professional. A true Building Partner provides feedback for plan improvements and jobsite efficiency.

A Building Partner who is doing their part to proactively provide fair market value, manage material & process waste and communicates improvements to the home builder is earning a “top dollar” value within the organization.

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Responses

  1. […] Forced Cost Reduction &#1110&#1109 &#1495&#959t Waste Elimination « Lean Homebuilding […]

  2. Nice post. In a true partnership the customer and supplier would work on waste elimination together. The cost savings generated would then be shared 50-50 by both parties. Customers forcing suppiers to reduce cost in not a good model as we have learned from many companies within the automotive arena. Real partnership requires respect for people.

    Tim McMahon
    A Lean Journey
    http://leanjourneytruenorth.blogspot.com

    • Thanks for the comments, Tim — “Respect for People” is one of the pillars of lean. It’s a tough balance; as the housing market values decline, construction costs must also reduce. However, a lot of builders take the easy path of placing cost reduction over quality. With lean waste elimination — and Builder/Trade partnership in that waste elimination — cost savings can be made without sacrificing quality.


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