Lean Thinking Works in Construction Too

BY ROBERT P. MADER of CONTRACTORs staff WAILEA, HAWAII A contractors bid price today is his cost plus his margin, quality consultant Dennis Sowards told sheet metal contractors here. But what if a contractor took the market price, subtracted his margin and whatever was left was all he could spend on job costs? What if a contractor could reduce his costs of goods sold by 15%? Sowards asked these questions

BY ROBERT P. MADER of CONTRACTOR’s staff

WAILEA, HAWAII — A contractor’s bid price today is his cost plus his margin, quality consultant Dennis Sowards told sheet metal contractors here. But what if a contractor took the market price, subtracted his margin and whatever was left was all he could spend on job costs? What if a contractor could reduce his costs of goods sold by 15%?

Sowards asked these questions and presented his report on “Lean Production Principles,” funded by the Sheet Metal and Air Conditioning Contractors’ National Association and the New Horizons Foundations, last fall at the contractor group’s annual convention.

Labor is 60% of a contractor’s costs, so it presents the most opportunity. Material, at 25% of costs, is next, Sowards said.

If contractors want to reduce their costs, they have to understand what is waste, what is value and how to cut out the waste that lingers in between steps. Quality guru Peter Drucker has said that new concepts have changed manufacturing, not new machines or automation. Drucker points to accomplishments such as lead times of less than a day, defects at less than 3 ppm, delivery rates of 99%-plus and 50 inventory turns a year.

Lean manufacturing started with Toyota, which needed to produce several car lines at a single factory, Sowards said. For its role model, Toyota turned to the person who originally changed the face of manufacturing, Henry Ford.

As Toyota has continually worked to improve its product, it set an enormous goal: Give the customers what they want instantly with no waste. While that’s impossible, it doesn’t stop Toyota from trying.

Toyota did not coin the phrase “lean thinking,” Sowards noted. That actually comes from the 1996 book on Toyota, “Lean Thinking,” by James P. Womack and Daniel T. Jones.

Lean thinking is a total quality management concept that’s based on value. If the customer is willing to pay for it, it’s value. If not, then it’s waste.

Waste includes defects, overproduction, inventory sitting around, unnecessary movement of people or goods, waiting around by employees or product designs that just don’t meet the user’s needs. Treasure hunts are a waste.

Sowards allowed that there are steps in every process that do not add value, but they had better be critical to production. Lean thinking focuses on minimizing or eliminating the steps in between processes.

Top management has to lead, but employees have to be engaged. A contractor should come up with standardized processes and then figure out, over time, how to improve them. It’s a continuous cycle of plan, do, check and act. The process can be applied to anything, whether it’s hanging pipe, dispatching or accounting. The employees who do the actual work are the ones who can make small, incremental improvements to the processes.

Contractors can implement lean thinking on construction sites by tracking productivity and their percent-of-plan-completed every day. The object is to keep crews installing, reduce inventory and cut costs. The work has to be made ready every day and anything that’s impeding the crews must be eliminated.

Sowards pointed out that it’s not magic or a quick fix and it doesn’t involve buying new equipment. It’s hands on, every day, figuring out what the bottlenecks are and eliminating them.

The impediments to lean thinking are many, Sowards said: no sense of urgency, lack of leadership, poor communication with employees, no short-term wins or celebrations for reinforcement, and seeing lean thinking as a quick fix and not as standard operating procedure.

The biggest impediment, however, Sowards said, is a mind-set that it does not work in construction. It’s been proven to work by construction industry leaders, such as Dallas-based TDIndustries, which consistently beats its estimates and works to continue to beat them, he said. Contractors who have implemented lean thinking keep finding ways that they can improve their processes and procedures.