Workshop on industrialization of prefabricated houses

Prof Lars Stehn and Ass.Prof. Helena Johnsson

Division of Timber Structures Luleå University of Technology

Workshop idea

1. Customer focused effectiveness tools and methods (do we do the right things)

2. Lean Production efficiency tools and methods (do we do things right)

Customer

process

Production and

design processes

1 2

Considerations from a market perspective – what is a

business model and how are they used in Sweden?

The Swedish industry of single family timber-based houses

• Consists of approximately 50 companies, with a total turnover of approximately close to one billion euro for 2009.

• 13 companies represents approximately 80 percent of the industry with a total net turnover of 77 million €,

• Each company has a total net revenue ranging about 11 million € and upwards

• What business models are viable/profitable

• What is a business modell?

Business models for single family housing in Sweden

Business model Market position and offering

Operational platform: Design adaptation

Operational platform: Production

1 Exclusive customer fit

Top of the line – High status. A unique house that is customer fit

Customer-driven development

Mostly manual unit production

2 Customized from a broad product range

A broad range of houses for every need

High degree of adaptation. More product and component platforms

Manual combined with automated unit production

3 Low cost and strictly standardized

Low cost and value for money Very few choices

Standardized. High degree of platform thinking

Lean production towards mass production of certain modules

Company Business model(s)

Number of standard models in catalogue

Average revenue margin 2001-2009 in %

Älvsbyhus 3 16

31.6 (266 M€)

Smålands-villan 3 12 21.5

Eksjöhus 2+3 48 17.7

Trivselhus 1 >60 16.5

Västkust-stugan 2 40 14.9

Myresjöhus 2 54

10.3 (125 M€)

LB Hus 2 + 3 39

8.8 (105M€)

Götenehus 2 51 8.0

Willa Nordic 1 >60 7.3

Värsåsvillan 2 51 6.8

Anebyhus 2 42 5.4

A-Hus 2+3 35 4.8

Finndomo 2+3 55 -10.9

Tough situation for Swedish single family houses companies

• Historical single family houses rate to total residence construction 40-45%. Now 25%: Lost market shares

• Low price increase but higher customer demands on quality and standard raise: Smaller company profits

• Maximum 85% of house price through mortgage loans: Fewer get loans

• Crisis in world economy: Fewer will or wait to invest in housing

• Harder demands on energy efficiency and higher municipality services and inspection costs lead to price increase: Suppressed investment interest

The connection between market success and production efficiency, the concept of decoupling point

(customer adaptation), the trade off between customization and

production

Standardization versus Flexibility

Site construction

Flat element

production Mass production Module

production

NON feasible match between

production set up and design

organization market offer

Closed building systems

Open building systems

Code based design

Catalogue houses

Standardization of manufacturing product specific

Higher option for customizaton design level

Market demands should be matched to production capability

Manufacturing capabilities Quality

Delivery (dependability) Cost efficiency

Flexibility Market demands

Product type (customized to standard)

Product range (wide-narrow)

Demand volume Price

Conformance to Quality On-time delivery Market offer

Production design Fixed assets and equipment

Organization Product planning and control

Supply chain integration Process technology

Market strategy Production strategy

General strategy to increase production capabilities

• If a producing company seeks higher effectiveness

• The general production strategy is to employ methods for:

1. Attaining higher quality (getting quality right and no need for rework)

2. More accurate and predictable delivery of houses

If a company has its quality, delivery dependability under control

3. increasing cost efficiency, and flexibility should be implemented

Quality Delivery

Flexibility

Cost 1 2 3

Two examples on how to connect market demands to production solutions

The main question is how to meet market fluctuations

1. Can fluctuation of market demands (volume and product type) be balanced by prefabrication based on forecast, i.e. smart build up of inventories?

2. Can fluctuations in market demands be met by delivering different product types (standard to customized houses) using one production facility design?

Market fluctuation

vs.

smart inventories

Singe family housing manufacturing production

• House production is initiated only after the contract for a new home has been signed

• No unsold homes are held in stock – no inventories

‒ Reduces homebuilders’ exposure to financial risk

‒ Provides possibilities to deliver customized homes.

‒ The order-pushing results in longer delivery times

A volatile market is a problem

• The fluctuating market demands in terms of variety of homes and variability of volumes creates:

‒ Planning difficulties to keep own personnel and subcontractors

‒ In times of high demand problems of keeping delivery times – levelled production

• The balance between fluctuation and stability of the production system is important for homebuilders to stay in business

Research tool

Value stream mapping (a Lean tool)

Research tool

• The point in the material flow where the clients’ orders penetrate

• This represents a structured inventory of semi complete systems components

Agile: response to fluctuating market demands, geared towards satisfying clients

Lean: stable and predictable production based on planning

Research tool

At the start of the production process: customization is maximized

At the end of the production process: customization

minimized

Smart inventory management can speed up the delivery time

• By using simulation of the mean time and standard deviation between clients’ orders

• The delivery time was shown to decrease with 10% while keeping the same work force and work load

Lu, W., Olofsson, T. and Stehn, L. (2011) 'A lean-agile model of homebuilders' production systems', Construction Management and Economics, 29: 1, 25 — 35

Market fluctuation

vs.

product diversification

Can one mix different market and production strategies in one company?

• Calculations on annual results for a single family housing company offering and mixing the production 4 different product ranges of houses

• What if scenarios were created by calculation different types of product mixes and assuming:

– 100% of the factory’s capacity is utilised, all of the houses sold

– Company will reduce their throughput time by 10% when producing narrow range of house types

Can one mix different market and production strategies in one company?

Business model 3:

Low cost and strictly standardized

Business model 2:

Customized from a broad product range

Business model 1: Exclusive customer fit

Mix of business model 2 and 3 : Contemporary state

Standardization versus Flexibility

Site construction

Flat element

production Mass production Module

production

Closed building systems

Open building systems

Code based design

Catalogue houses

Standardization of manufacturing product specific

Higher option for customizaton design level

BM 3

BM2 BM1

Can one mix different market and production strategies in one company?

• Although the company was able to produce customised elements the manufacturing facilities is mainly adapted for a product range representing a low price strategy

– To produce customised houses the production line and resources have to be much more flexible.

• The second reason for the differences in annual results relates to the company’s calculations of the contribution margin for each product type

– The pricing of customised house types needs to be developed