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 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.
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.
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.
Shortage of Skilled Workers
Another challenge the industry faces is a shortage of skilled workers. If the industry wants to attract workers, it must change the perception that construction work is undesirable. Again, lean construction is a valuable tool in that battle. When there is a lack of workers, there is a tendency to reduce the job requirements to find additional workers. To make this work, the requirements tend to be revised downward so lower skilled workers can qualify. While this works in the short term, it creates boring jobs that highly skilled workers don’t want. Further, this approach tends to reduce productivity and increase the downward pressure on wages because wages reflect productivity. Throwing money at a problem is never a solution, but wages are a factor in the equation. Therefore, emphasis must be placed on increased productivity so highly skilled workers can be attracted and wages increased. This isn’t a delusion because lean manufacturers have already proved this concept works.
While there are no panaceas, Lean offers substantial improvements to the challenges facing the construction industry. Those contractors that want to prosper in the 21st century should move toward thinking lean to improve their processes.
The Power of Lean in Construction
Lean construction is a systematic application of lean thinking to the design and construction of buildings that do what clients and end-users want-provide value. Evolved over the last 50 years, lean thinking has revolutionized some parts of manufacturing and is now facilitating significant improvements in the way service organizations like hospitals, banks, etc. are meeting customer requirements.
Adopting lean thinking requires sustained work over a number of years. There are no instant solutions. For most people, lean requires a change in the way they think and the behaviors that support their actions. There are many things that lean organizations do that can be copied — partnering, supply chain management, value stream analysis, flow, etc. — but they are only lean when they are done with lean intent. That requires lean thinking around how the organization works.
Not all construction firms accept waste as a necessary prerequisite for doing business. They minimize or eliminate it by using Lean tools and techniques. Some examples of companies using Lean principles and tools to overcome poor quality, poor delivery and less than stellar profits are: Boldt Construction, Linbeck Construction, Mortenson, Sutter health, Veridian Homes, and the Walsh Group
Lean process improvement isn’t a new concept, but it is relatively new to construction. There are many skeptics who believe Lean is a manufacturing strategy and is not suited for the construction industry. Many aspects of the Toyota Production System and other lean tools can and do apply to the construction process.
Courageous, out-of-the-box thinking construction organizations such as Boldt, Turner Construction, and Messer Construction along with others, are leading the way by demonstrating that lean process improvement can reduce waste in construction with results mirroring other industries.
Lean principles hold the promise of reducing or eliminating wasteful activities, costs, and inefficiencies in construction, creating a system that provides value to customers.