Lean Construction – If Not Now, When?

The Lean Construction Journal in a 2009 white paper pegs the ratio of non-value-added or wasteful activities in a typical construction project at 55% to 65%. The white paper-Creating Value: A Sufficient Way to Eliminate Waste in Lean Design and Lean losa radiante Production¬†goes on to say, “Creating value and only value is the best way to reduce waste in design and construction.”

Needless to say, the construction industry is badly broken and needs fixing. How does the industry rise up and meet the challenges of customer demand for higher quality, improved profitability, and the shortage of skilled workers? The first step is to cast aside the not invented here syndrome and embrace a time tested manufacturing solution -the Toyota Production System-commonly called Lean.

Why should construction company managers even consider Lean as a way to improve their business? Here are some eye opening facts about the U.S. construction industry:

60% to 85% of construction time is spent waiting or fixing mistakes

The average construction worker operates at 40% efficiency

Critical shortages exist in qualified and skilled workers

The return on equity for construction pales in comparison to all other U.S. industries

Customers are frustrated with poor quality, confrontation, excessive change orders, and scheduling delays

These are some of the same or similar issues Japanese companies like Toyota faced in the 1950’s. Lean construction can help remediate the dire conditions described above. While Lean is no silver bullet, lean construction offers substantial improvements to the problems facing the construction industry. If construction companies want to prosper in the 21st Century then they should move toward lean thinking.

Why so Much Waste?

Why so much waste? Construction projects are so fragmented. Many times subcontractors do their work disregarding how what they do impact the work of other subcontractors. We call this the “throw it over the wall’ mentality. One functional department ( in this case subcontractor) completes its part of the project and throws it over the wall to the next department (subcontractor) who throws it back over the wall because it isn’t right. This mentality sub-optimizes the performance of the entire project creating quality and schedule problems.

Lean thinking is a new way to manage construction. Many people object because they believe lean is a manufacturing strategy and has no application in a “unique” industry like construction. The goal of Lean Process Improvement is to maximize value and eliminate waste using techniques like one-piece flow, Just-in-time delivery, and inventory reduction.

There is a small but growing movement to apply lean principles to construction. Applying lean principles to construction really means applying them to project management. This transformation involves mapping your construction processes, determining the most efficient work flow and establishing a pull system. How do you create a pull system? As a contractor you can begin by looking at what the completed project should be, and then work backwards, identifying each preceding step. Downstream processes determine what the upstream processes will be and when they should take place. Taking this view of the project will help you control the work flow. You should also look at creating value stream or process maps of your job support processes as well as project processes. Processes like job setup, estimating, payroll, accounts payable, purchasing, tool and material handling are good candidates for mapping.

The Need for Change

The construction industry is broken and the five facts below demonstrate why the industry needs to change:

If it takes six months to build a house, then 85 percent of the time is spent on two activities: waiting on the next trade to show up, and fixing mistakes

Clemson’s Professor Roger Liska conducted an analysis of productivity on the construction industry and found that the average construction worker operates at only 40 percent efficiency.

Critical shortages of qualified, skilled workers are predicted to only get worse.

Despite the construction boom of 2006, Business Week’s 2007 Investment Outlook Report indicated the return on equity (ROE) for all U.S. industries was 17.9 percent, while the ROE for the construction industry was a mere 9.7 percent.

Industry customers are frustrated with poor quality, confrontation, excessive change orders in quantity and dollar value, scheduling delays and litigation.

Adding Value

Lean construction focuses on identifying and delivering products or services on which the client/owner places high value. Clients often place high value on:

No or limited change orders

High quality-meaning conformance to requirements/specifications

On-time delivery of the project

To learn what a particular client values, the contractor must effectively communicate, then collaborate, with the client to achieve those desired results. While it may be easier to accept this concept in the negotiated arena, it also works in the highly competitive bid marketplace.

While there are fewer options in the bid market than in the negotiated environment, there are still numerous ways contractors can add value to the construction process for owners that cost the contractor little or nothing. Simply by eliminating confrontation and reaching out through better communication and collaboration, the contractor can substantially increase value for the owner.

Profitability

When contractors focus on delivering maximum value to clients, they usually find that profit margins increase. This is not surprising, since in virtually any industry the cheapest products usually produce the smallest profit margin. Therefore, if a contractor competes on price, the contractor is forced into a low margin sector of the industry. Industry data supports the belief that highly competitive bid markets are the least profitable. Secondly, since lean construction is about reducing waste, this means lower costs. Therefore, the contractor is under less pressure to lower its profit margins. Toyota was able to almost immediately double its productivity. When you consider the average construction worker is working at only 40 percent efficiency, the construction industry should expect dramatic improvements. Before blaming the worker, it should be noted that Roger Liska’s studies revealed that the majority of the lost efficiency was due to poor management-20 percent results from waiting for materials or supplies, 20 percent results from inefficient company processes and 15 percent results from work rules or congested work areas.

 

 

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