I am, or was, an off-site construction manufacturing turnaround guy. I believe in Lean and 6-Sigma in concept, but I also know that implementing them within a company is hard. Not allowing people to slip back into their old ways is even harder. Many programs go by the wayside once management gets distracted by other priorities.
To anyone who has grappled with this issue, I have to recommend a really great read: “How Much is the Milk.” It grabbed my attention and I couldn’t put it down, especially because it spoke to my heart as a builder.
“How Much is the Milk,” or “The Milk” as author Ken Pinto calls it, gives you the tools you need to implement and maintain bottom-line-changing programs that not only address the builder’s bottom line but can also help you build bridges with your suppliers and subcontractors that provide real advantages to everyone involved.
Telling his story as a Supply Chain Manager for several large Production Builders, Ken shares his transformative secrets to pile on profits while building a supply chain team from builder, to contractor, to sub-contractor, and even with distributors and manufacturers. I found myself cheering him on as I read about how he “found” new ideas to lower costs across the board, thereby lowering the cost of homes to help more people participate in the home buying process. In his role as the Change Maker, he unearths causes that cost everyone more money, waste that most people had accepted as standard, and how to turn adversarial relationships that cost everyone money into collaborative efforts, transforming individual strengths into one team effort.
One of the first topics he explored was how relying on three all-inclusive or “lump sum” bids, the standard for construction for many years, was a flawed process. His take was completely different and he clearly and concisely demonstrated why the three bid and picking the lowest bidder was at best a win-lose, and toss a coin to know which side of the equation you were on. Many times, the low-bid subcontractor missed items, accidentally or on purpose, only to add them back in a change order that was priced at a much higher margin. Ken explained how that by changing the bidding structure to a unit-priced format, separating labor and materials, he was able to look at costs, volumes, and labor rates. His goal was not to beat down prices as much as find waste and errors that cost both parties money. His goal was to help each segment of the “Team” identify waste and errors to improve everyone’s understanding about cost.
I have actually counted the number of fasteners to install a typical window in our stock classrooms or office trailers, so reading how Ken physically measured all of the drywall in a model to compare against unit price bids was a deja vu moment for me. In his case, he discussed (note I didn’t say confronted) what he found with the subcontractor, only to have the sub admit he was in error. That process, knowing the unit cost and volume, empowered Ken to expand his efforts to all trades. Some he found were already as accurate as possible, but many either over-estimated or under-estimated materials and as a result labor too. In his drywall segment, he realized a $4,000 per home savings. Not only was the sub over on materials, but his labor was based on the bid square footage.
“How Much is the Milk” goes into how Ken discovered many of the methods he used to cut costs. He asked suppliers and subcontractors what he did as a customer that was inefficient and wasted their time and money, and discovered many ways to make doing business with each level of the team better. It could be something as small as asking subs what his company could do better to make their job easier, to working with manufacturers to resolve concerns about giving deep discounts, in lieu of the industry standard rebate programs. Ken’s discoveries and hard work built relationships with manufacturers that had never been considered. An example was stucco. If you buy enough, the price is great. But manufacturers are reluctant to give the lowest price to you when that price can be misused by the distributor. Their solution was an industry first: custom branding. That put the lowest priced stucco in a bag that had the builder’s name on it. As a side note, Ken thought it was amusing to think of a bag of stucco with their company’s name on it turning up at a competitor’s site. After all, subcontractors work for multiple builders. Ken’s book shows exactly how he developed, perfected, and implemented each of his strategies. He goes into how to approach your company’s management team as well as discussing ideas with subcontractors, distributors, and manufacturers.
Ken thinks outside of the box, like wondering how profitable it is for a half-empty truck to deliver drywall, electrical, or tile and then building strategic partnerships between suppliers to almost always have full trucks making deliveries and having materials on site exactly as needed. He covers Builder Owned materials, the pitfalls and profits, risks and rewards. He goes into detail on how to work with suppliers to have materials stored on site and restocked without having to maintain a burdensome inventory system. He shows how doors, windows, paint, stucco, and some fixtures can be Builder Direct purchases, with the savings, logistics, and how to solve the eventual problems that come up.
“How Much is the Milk” covers his entire career, strategies, processes, and results. He tells the good, bad, and the difficult, but most especially he provides a road map for anyone in construction who wants to undertake any or all of his processes. It tells not only how to work with suppliers and subcontractors, but how to work internally to build a company-wide culture of innovation and teamwork. Yes, you’ll find out why the book has that title. It’s a great read!