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December 18, 2013

Construction efficiency is a growing concern

Construction Corner | Korky Koroluk

Everyone in the construction industry has encountered situations, where a job went to someone who submitted an impossibly low bid.

Sometimes, the bidder has simply made a mistake. Sometimes, he’s desperate for cash flow and will take a job at any price.

To compete, other contractors feel they have to cut already-tight margins even more, in what, for some, has become a race to the bottom.

There is another adverse effect.

Purchasers of construction might come to expect artificially low prices for their projects.

But, there is another scenario.

Korky Koroluk

Constuction Corner

Korky Koroluk

Maybe the low bidder can make money on that super-low price.

Maybe — just maybe — he knows something that the rest of us don’t.

That’s the possibility raised in an excellent paper by Gregg M. Schoppman, a principal in FMI Corporation, a large firm of management consultants, market researchers and investment bankers catering to the engineering and construction industries in the U.S.

Many contractors, he writes, simply can’t see how the competition might do enough things differently enough to allow for bids that are startlingly low.

He said that there are so many ways to track direct and indirect costs, that even within one company, an estimator might have a far different idea of project cost than a field manager.

Schoppman said that a concern about efficiency is spreading quickly in the construction industry — often based on management systems such as Total Quality Management or Lean Six Sigma.

Such systems force companies to reduce waste — labour and/or material — as key to delivering a project economically.

Greater efficiency in companies that use these systems can mean lower bids — and greater profits, as well.

Although these systems promote concepts that are relatively new to the industry, they incorporate ideas that have been around for a long time.

Lean construction, for example, is an off-shoot of the automotive manufacturing sector in Japan, where it came to be known as the Toyota Production System, and it focuses on waste of all sorts.

Thus, Schoppman says, “Lean is the continuous elimination of waste driven by customer satisfaction.”

“Combined with Six Sigma — another methodology for improving effectiveness and efficiency — Lean aims to drive out waste of all forms.”

So Lean’s targets include such things as time lost when people, materials or equipment is kept waiting, or wasting workforce potential when the people doing the work aren’t consulted about possible improvements to the methodology.

Successful use of Lean means buy-in by everyone, from project owner, architect, the engineers, the general, the subs, the site foremen — everybody.

People must be listened to.

Schoppman also looks at Building Information Modeling (BIM) and prefabrication and modularization as ways that contractors can deliver better projects at lower cost.

But, contractors have to take the time to learn something about each and don’t expect any of them to be magic bullets, he said.

Magic bullets don’t exist.

He concludes that “contractors must take an exhaustive and introspective look at how they build.”

“Change at field level truly begins at the top of the organization.

“Once the leaders of the organization are committed to making any enhancement for the good, they can begin not only to employ new techniques and tactics, but also to address the human element.”

Schoppman’s paper is The Science of Efficiency and Productivity: Construction 2.0 in the New Normal. Search for it at www.fminet.com. You’ll be asked to register before downloading, but it takes only a minute.

Finally, a note for Julie Pithers, who saw a column I wrote in October about innovation in the construction industry and sent a note recommending Schoppman’s paper. Thanks, Julie.

Korky Koroluk is a regular freelance contributor to the Journal of Commerce. Send comments or questions to editor@journalofcommerce.com.

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