Builders must track and manage this critical number to meet their construction goals
We often say that this business comes down to the numbers. A home building company will start the year with an objective and develop plans for each functional area. If all goes according to plan, they will collectively meet the objective. One “number” that is often overlooked in the planning phase is the capacity of the trades. The typical purchasing manager hopes enough trades are in each cost group, but does not have a true system to know for sure. “Hoping we are good” should not be part of the plan.
Measuring the capacity of your trade bench is not a once-and-done exercise, but instead requires a constant review so the purchasing manager can be certain to have sufficient trades throughout the year. It starts with setting up the template, creating a routine to discuss changes with the trades, and then having a feedback mechanism to adjust as necessary.
The following steps will outline how to build your template and determine your trade capacity:
1. Identify which schedule activities are on the critical path. If an activity is not on the critical path, your capacity is greater in that area because the trade has ample time to do the work and they have flexibility in the schedule, which adds capacity. Start with focusing only on the critical path activities.
2. Group the schedule activities by trade group. While plumbing may have three activities on the schedule, they all fall under “Plumbing”.
3. List your trade groups in order by earliest schedule activity. This helps prioritize once you determine the capacity of each trade group.
4. Determine each trade group’s rate of starts. Talk with each trade independently and boil down their capacity to “starts per week”. For a trade group that has more than one activity (electrical is a good example of a trade with three activities — rough-in, final, and plate), be aware if the same crews perform all the activities. If so, you will need to adjust the start rate to reflect that.
5. Define your target number. Using your company’s business plan, determine how many starts per week your capacity will need to handle. If the company’s plan is 250 closings for the year, you have closed 25 homes YTD and another 50 homes are in production, you need to release 175 homes for the remainder of the year.
Divide this total by the number of weeks remaining in the year for a necessary release rate; this requires deducting your cycle time from the end of the year to get the last possible release date. If 29 weeks remain to release a home and close this year, divide 175 by 29; six homes must be released weekly to achieve the goal.
Adjust this number as the year progresses and always be aware of the number of homes needing to be released. This, along with a reasonable safety factor, creates your target for your capacity. In this example, you may want to use eight per week as your capacity target. (See the Demand Calculation Table below.)
6. Solve for the greatest and earliest constraints. Contrast the capacity you have in each cost group and determine the most restrictive “bottleneck”. We will borrow a key concept here from Eliyahu Goldratt’s The Goal and his “Theory of Constraints”. He teaches that your organization’s throughput is limited by the most restricted constraint on the critical path.
For instance, if your goal is to build 250 homes this year, but your framer can only manage three starts per week, your total throughput will not exceed 156 homes. The most restricted cost group will set the pace and you will not exceed it until you add capacity to that constraint.
These six steps outline the process to measure your capacity and monitor the demand; your goal is to create a trade bench that can handle the demand of the company. It is best to create a capacity that exceeds the demand needs by enough margin to meet volume spikes if they occur.
It all starts with knowing the numbers. Let’s focus on these numbers and quit merely “hoping we are good”.
Demand Calculation Table
2018 Closing Goal: 250
YTD Closed Units: 25
Units in Production: 50
Remaining Units Needed: 175
Production Cycle Time (Calendar Days): 90
Last Day to Release 2018 Home: 9/20
Next Release Date: 3/1
Remaining Weeks for Release: 29
Remaining Units Releases per Week: 6.0
Adjusted Weekly Rate Range: 6 - 8