Is component manufacturing ripe for disruption? Two foreign-backed entities came to our shores and tried to do just that for six years: Katerra with billions and Blueprint Robotics with many millions. Both were going to teach us how to build better, but with entirely different approaches. Out West, Katerra took on vastly more than just building components. In the East, Blueprint took a component-centric approach, but with a European bent.
Today both are shut down, although Blueprint is hanging on. But their demise wasn’t because they picked the wrong place or time or didn’t invest enough money. Katerra picked Phoenix, with 25,000 new residents arriving every year. Blueprint picked the Baltimore-DC-Northern Virginia metro area with even more in-migration. And their timing was prescient. Housing starts would increase by 40% during their tenure. It seemed the ideal environment for start-ups. But not so for these two would-be players.
The Katerra fiasco has been well documented but was foreshadowed by the former CEO’s observation that, “The building business is stupid.” That naivety belies the complexity that CMs face, as characterized by “Builders Daily” post-mortem, “People in residential construction – taught, wizened, successful, chastened, humbled, and experienced – know in their hearts, however, that Katerra’s failure was not financial. It was operational…its operators on the real messy ground of assembly tables, sophisticated CNC cutting machinery, and real estate development met more than their match…the nexus of design, engineering, and assembly can be imagined to be simpler than it really is.”[1] In other words, CMs know what they’re doing. Though it isn’t rocket science, it takes proven systems, it takes time, and it isn’t easy.
The Blueprint story is a lot different but involves some of the same hubris. On these pages I have written favorably of their potential, with their unique Baltimore Harbor location adjacent to the massive Amazon Fulfillment Center complex.[2] I was impressed with their latest generation Hundegger/Randek automation equipment, logo-emblazoned trucks, sky-lifts, and uniforms. I began to give credence to the now-fateful words of their German equipment representative, “You can’t carry loose 2x4’s to jobsites anymore.” The clear implication was that everything must be installed in the factory as is done in Germany, and that’s what they tried to do with closed-wall panels and roof panels. Local builders, CMs, and I toured regularly to monitor their progress. Blueprint emphasized the precision of their components, but soon learned what Ryland and NVR did in their 1970’s closed wall operations: field conditions aren’t precise. A foundation variance creates havoc with closed panels. They also failed to gain a builder or enough builders to consistently load their plant. Like all CMs, they were plagued by the uncertain timing of commercial projects. Closed walls must be built and delivered just-in-time or built ahead and shipped to an offsite enclosed storage area. Even the most efficient open-panel shop has a difficult time staying ahead of framers on “blow and go” projects.
Both Katerra and Blueprint failed to achieve the most fundamental manufacturing requisite – steady, consistent volume. They wanted to go “all the way” out of the gate, rather than to ramp up their processes slowly until all systems worked efficiently. This is in stark contrast to the origin and growth of the now-behemoth Builders FirstSource. They grew their component business by starting up one plant at a time. Although in later years BFS has grown much faster, they did so by acquiring well-proven businesses.
Even though many CMs predicted the demise of Katerra, most will continue to search incessantly for better methods, even from suspect sources. While closed wall panels may be too big a leap, installing windows in the factory may not be, as NVR decided not long after visiting Blueprint. And floor panels are worth evaluating, as Pulte is doing with its acquisition of ICG in Florida.
Perhaps if Blueprint develops a give-and-take relationship with a builder-partner who can load up their plant, as they hope to do, they will have a better chance to commercialize some of their European technology. In the meantime, CMs will keep their eyes on potential innovators, especially those who use an incremental approach, while discounting those who bloviate that we’re mired in Stone Age technology.