Remaining Relevant in Todays Dynamic Environment

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Remaining Relevant in Todays Dynamic Environment

• Tim Costello
• Chairman Chief Executive

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My Personal Journey
25 years of hands on learning Custom Builder and
Renovator
Academy Member Board of Governors Member
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The Chinese use two brush strokes to write the
word crisis. One brush stroke stands for
danger, the other for opportunity. In crisis, be
aware of the danger but recognize the
opportunity. John F. Kennedy April 12, 1959
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Globalization
350,000 engineering graduates/year
1.2 Billion
500,000,000 rural workers need industrial
integration
1.0 Billion
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Leverage of the Big Box or Buying Groups
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Disruption of the Supply Chain
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Volatile Commodity Pricing
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Environmental Concerns
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Political Uncertainty

• Increased corporate personal taxes
• Environmental legislation
• Increased employee taxes benefits
• Revival stimulation of unionization
• Renegotiation of free trade agreements the
  resulting supply chain disruption

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National Economic Malaise

• 50 Trillion unfunded
• obligations

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Record National Debt
Look what happened in just 6 Months!
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It all seemed to start with housing
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The Boom

• Setting the stage
• Favorable market demographics for move up and 2nd
  homes
• A recovering market from the 1991 recession
  resulted in 8 years of steady price appreciation
• Financial fallout from the Tech bubble and 9/11
  drove investor to the safety of real estate
• Historically low interest rates for a prolonger
  period drove prices even higher
• Ongoing policy efforts to spur home ownership
  created new program for easier money
• Lending institutions changed century old
  practices and non traditional mortgage boomed

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The Boom

• Results
• Unprecedented
• Construction boom
• Rapid expansion of mortgage debt (new cash
  outs)
• Accelerating housing prices
• Demand was borrowed from the future
• Investor demand created over built situations
• The system became fragile and susceptible to
  volatility

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Increase in Home Mortgages
Billions of dollars Seasonally adjusted annual
rates
Source Flow of Funds, Federal Reserve
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SUBPRIME MORTGAGES Most vulnerable markets
New Home Market Trends
Inland Empire
Thursday, September 28, 2006
Lowest Risk
Michelle WolkoysPrincipal Builder Advisors, LLC
(Meyers Group) [phone] x207 [phone]
mobile
Highest Risk
Source 2000 Census and the Federal Financial
Institutions Examination Council
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ARM RESETS 440 Billion to reset this year
New Home Market Trends
Inland Empire
Thursday, September 28, 2006
Lowest Risk
Michelle WolkoysPrincipal Builder Advisors, LLC
(Meyers Group) [phone] x207 [phone]
mobile
Highest Risk
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Home Prices Decline

• 4Q08 record decline in home prices -18.2
• Greater than 20 declines in 8 of 20 top markets
• Prices down 26.7 from 2Q06 peak
• Sun Belt -- Miami, Tampa, Phoenix, Las Vegas,
  San Diego and Los Angeles, plus San Francisco --
  continue to see the largest declines
• Nationally, home prices are back to levels seen
  in early 2004

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(No Transcript)
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To view the video of the housing market as
modeled by a roller coaster ride go to
http//www.youtube.com/watch?vkUldGc06S3U or go
to www.youtube.com and type in housing
rollercoaster
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In Order to Recover we Need to Feel the Pain
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Home Prices Are Back to 2003 Levels
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Regional Trends
Decline () from Peak As of November, 2008
Peak Gain from 2000 As of November, 2008
Source Standard Poors
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A Regional View
Los Angeles
Boston
New York
San Francisco
Chicago
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Existing Home Salesexacerbate the problem
Months of supply
Existing home sales represent more than 90 of
sales
Existing home sales
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Home Sales Decline
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The Effect on Housing Starts
New home sales fell to 331k the lowest since
records have been kept (1963)
Starts down 75 from peak, down 56 in the last
12 months
Jan 09 466k
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Predicting the Recovery
7 yrs
3 yrs
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Predicting the Recovery
The excess must be offset, it could be as high as
3 million homes
1M starts
12 yrs
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Predicting the Recovery
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Slowing the Recovery - Unemployment

• Currently, 7.6 (official), 14 (broadest), 18
  (Alternative)
• Forecast for 9.3 by Sept.
• 3.6 M jobs lost since 12/07
• 11.6 M unemployed

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Slowing the Recovery Consumer Sentiment
6 month prediction 50.5
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Slowing the Recovery Demographic Shift
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Slowing the Recovery Demographic Shift
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Slowing the Recovery Demographic Shift
2020
2010
2020
2010
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Slowing the Recovery Demographic Shift
2050
1990
2000
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Buyer Mix Will Change
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Builders are Disappearing

• Over 70 builders that built more than 100 home/yr
  have gone bust
• 25 builders in the Builder 100 have gone bust
• And this is just the beginning!

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Builders are Shrinking
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• In the businesses world, the rearview mirror is
  always clearer than the windshield
• Warren Buffett

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3 Steps to a Sustainable Enterprise

• Focus on the right business/market
• Become a student of the environment
• Keep your antenna up
• Dont fight the big changes
• Become the most efficient effective provider of
  your product or service
• Learn to see eliminate waste
• Manage with data
• Drive waste out as a culture
• Differentiate your business
• Focus on the customer
• Make it easy to adopt, find, share, use.
• Learn to delight your customers

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To view video go to www.youtube.com and type
in Bizkit the sleepwalking dog
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So, Whats Your Environment Telling You?
Legislative Change
Customer Demographics
Environmental Issues
?
Commodity Prices
Changes in the Supply Chain
Product Mix
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Environmental Summary

• Builders
• There will be fewer of them
• Smaller builders will be credit strapped
• Big builders will get bigger, consolidation will
  continue
• Big builders harbor large advantages at the low
  end of the market
• Builder will pursue the light asset model
• Builders will continue to decouple labor and
  materials
• Builders will be under intense price pressures

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Environmental Summary

• Buyers
• More first time buyers (as a of the market)
• The wealth destruction effect will have a long
  lasting psychological effect
• Demographics will dictate decreased demand for
  move up an second homes
• The aging population offers a new in home
  services market
• New generation Y buyers are more technically
  savvy represent a stable future market

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Environmental Summary

• Other
• Legislative
• Energy conservation, distributed power
  generation, energy use management
• Carbon tax
• Market forces
• New home inventory and land shortage
• Material Prices
• Deflation followed by inflation
• Trade issues
• Import certificates, restrictions, taxes.
• Higher taxes and employee costs

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3 Steps to a Sustainable Enterprise

• Focus on the right business/market
• Become a student of the environment
• Keep your antenna up
• Dont fight the big changes
• Become the most efficient effective provider of
  your product or service
• Learn to see eliminate waste
• Manage with data
• Drive waste out as a culture
• Differentiate your business
• Focus on the customer
• Make it easy to adopt, find, share, use.
• Learn to delight your customers

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Lessons from Toyota

• 17.4 Billion already committed
• Another 21.6Billion requested

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Lessons from Toyota

• No layoffs
• Increasing market share
• Product leadership

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Learning to See!
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Provide information to enable other to see
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The Issue Is Waste
Waste is the root issue looking for a
solutionWithout waste, there is no roadmap to
improvement
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Waste

• Anything other than the minimum amount of
  equipment, materials, parts, space and workers
  time, which are absolutely essential to add value
  to the product

Toyota
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Learning From the Best
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The methodology is well documented
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The tools are well documented
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A Holistic Model for Creating a Lean Supply Chain
Environment
System Design
Tools Methods
Trust
Systems Thinking
Short Response Time
Communication
Level Schedule
Kanbans
Andons
BTO
Visual management
1 Piece Flow
Lead Time Reduction
6 sigma
Employee Involvement
Value Stream Mapping
Std. Work
Delayed Configuration
5 Whys
5s
Vendor managed inventory
Poke Yoke
Work cells
Supermarkets
0 Defects
Need for Change
Shared Vision
0 Inventory
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But What Can I do?
We are a university, church, association,
training center..!
There are just three people in my office!
I dont work in manufacturing!
We use lots of contractors and third parties!
Were a non-profit!
Were a small company!
But I dont build auto parts!
We dont build anything we provide a service!
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Prerequisites for Learning to See thus
implementing Lean

• Every employee, function, department, job,
  division, supplier..
• Must be able to understand and measure their
  effectiveness and efficiency

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Prerequisites for Learning to See thus
implementing Lean

• Expeditors
• Receptionists
• Cafeteria workers
• Dispatchers
• Purchasing agents
• Quality control staff
• Engineers
• Planners
• Maintenance
• Supervisors
• .

• Skilled trades
• Assembly staff
• Chemists
• Accountants
• Analysts
• Marketers
• Sales staff
• Developers
• Human resources
• Repairmen
• .

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Prerequisites for Learning to See thus
implementing Lean

• Efficiency
• The cost in total resources divided by the output

• Effectiveness
• How well we do our job measured by the quality of
  its output

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Prerequisites for Learning to See thus
implementing Lean

• Every employee, function, department, job,
  division, supplier..
• Must be able to understand and measure their
  effectiveness and efficiency
• Identify waste which inhibits perfection

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The Seven Wastes
Transportation
Inventory
Defects
Wait time
Processing
Motion
Over Production
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Prerequisites for Learning to See thus
implementing Lean

• Every employee, function, department, job,
  division, supplier..
• Must be able to understand and measure their
  effectiveness and efficiency
• Identify waste which inhibits perfection
• Deliver the information which allows us to ID
  waste, manage it and mitigate it

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What is all the information?

• Standardized work instructions
• Boundary samples
• Visual aides
• Resource requirements
• Exception information
• Order info
• Sequence info
• Product manufacturing specifications
• Cycle time data
• Throughput analysis
• Output variation data
• Production settings parameters

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How Can it be Delivered?

• Visual controls
• Poke Yoke
• Skills Matrix
• Andon Boards
• Reports
• Kanban signals
• Standardized work instructions
• Boundary samples
• Tooling, fixtures, jigs
• Software systems
• ......

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The House of Quality Tool

• Translating Plans into actions
• What into How
• Cascading system to detail execution

How
What
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A Housing Example
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(No Transcript)
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Day 11 Date ____________________
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Day Eleven Cable Cable - 1151
Day Eleven
Cable
__________________________ I certify that the
above work has been completed. Contractor (Print
your name) Builder must be present during the Job
Complete Check. __________________________ I
certify that the above work has been
completed. Builder (Print your name) Electrician
Under Ground Conduit
__________________________ I certify that the
above work has been completed. Contractor (Print
your name) Builder must be present during the Job
Complete Check. __________________________ I
certify that the above work has been
completed. Builder (Print your name)
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Simple Best Practices

• Paint the ends of plans
• Stack materials in tall columns, put weights on
  the stack or rest forklift blades on material
• Put Lexan covers on model home toilets
• Dont plug in model home appliances
• This really is not rocket science!

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3 Steps to a Sustainable Enterprise

• Focus on the right business/market
• Become a student of the environment
• Keep your antenna up
• Dont fight the big changes
• Become the most efficient effective provider of
  your product or service
• Learn to see eliminate waste
• Manage with data
• Drive waste out as a culture
• Differentiate your business
• Focus on the customer
• Make it easy to adopt, find, share, use.
• Learn to delight your customers

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Creating Differentiation

• Focus on the customer
• Toyota
• Learn to Delight
• Cannon
• Communicate in their terms

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Ryland home video explaining their home
technology program
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The Kano Model
Dr. Noriaki Kano
Zone of indifference
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It is not the strongest of the species that
survives, nor the most intelligent, but the one
most responsive to change Charles Darwin
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Q

A
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• Tim Costello
• tcostello_at_builderhomesite.com