• Generic selectors
    Exact matches only
    Search in title
    Search in content
    Search in posts
    Search in pages
    FMI Quarterly
    Special Reports
    Industry Outlooks
    News
×
  • I'm here to...
  • Services
  • About Us
  • Generic selectors
    Exact matches only
    Search in title
    Search in content
    Search in posts
    Search in pages
    FMI Quarterly
    Special Reports
    Industry Outlooks
    News
  • Generic selectors
    Exact matches only
    Search in title
    Search in content
    Search in posts
    Search in pages
    FMI Quarterly
    Special Reports
    Industry Outlooks
    News
×
  • I'm here to...
  • Services
  • About Us
  • Generic selectors
    Exact matches only
    Search in title
    Search in content
    Search in posts
    Search in pages
    FMI Quarterly
    Special Reports
    Industry Outlooks
    News
FMI Quarterly/December 2013/December 1, 2013

Today’s Prefab: Just the Tip of the Iceberg

workingplans23_imageNothing is more exciting for contractors than to reach the next level profitability or to reduce their costs so they become more competitive. For this reason, when something comes along that promises to increase construction productivity dramatically and change the way buildings are constructed, savvy contractors should pay attention!

One of the trends in the industry having major impact on productivity is the use of prefabricated assemblies. Potential benefits of prefabrication include the positive impact on margins as well as establishing sustainable competitive advantages for companies.

WHY PREFAB?

The specific meaning of “prefabrication” can vary according to industry sector or region, but for this article, “prefabrication” includes preassembly, off-site fabrication and modularization. Prefabricated assemblies can use the same materials as on-site production and be engineered to achieve the same, if not better, structural integrity than typical on-site assemblies.

Repetitive building processes conducted at a central location offer many operational advantages compared to site-specific construction activities:

Weather. Schedule delays resulting from inclement weather can be eliminated. Construction materials and workers are sheltered from excessive cold, heat and moisture during the entire production.

Materials. Materials can be stockpiled and staged, making them available in specific locations as needed and so they do not interfere with concurrent construction activities. Materials can be inventoried easily to ensure no delays result from missing parts or pieces. Suppliers can deliver materials on a prescribed schedule using on-site loading docks and materials handling equipment as necessary. Additionally, material waste is reduced.

Equipment. Power and water services, tools, overhead hoists and dust collection systems can be installed on a permanent basis. Setting up similar capabilities on individual construction sites usually is cost-prohibitive (see Exhibit 1.) Heavy equipment, such as forklifts, is made easily available without the need to transport it frequently from one project to another. The permanent location also allows the use of automated equipment to a larger extent than do most jobsites.

2013q4_todays_prefab_ex1

Layout. Assembly areas may be complemented with on-site welding shops, painting booths and cabinet shops, thereby reducing the need for subcontractors or separate laydown yards on the jobsite.

Supervision. By not having to travel from jobsite to jobsite, foremen and superintendents can maximize their input and supervision over all aspects of the construction process. The progress and productivity of individual employees can be measured in real time, and help or guidance is continually available. Safety aspects of the production process can be managed and controlled closely, and hazards can be evaluated and minimized with little effort. The factory environment also minimizes the amount of time workers are exposed to traffic, height and water hazards.

Location. The location of the prefabrication site can be chosen carefully to maximize several advantages. It is possible that construction processes can go on 24 hours a day, away from residential areas or office buildings. A site in close proximity to railways, shipping ports, highways and airports adds flexibility and ease to shipping and receiving efforts. The cost and availability of power and water can also be planned for in advance. Location can also minimize labor expenses. Choosing a location where the cost of living is low and the availability of labor is high only adds to the economic efficiencies offered by the prefabrication processes.

Tracking Completed Work. Percentage complete, cost to complete and finished work can be accurately tracked and inventoried. These measurements give accountants and project managers greater ability to organize and plan work activities to stay on schedule and under budget. Timely billings for completed work and/or work delivered can decrease the amount of time capital remains in the conversion cycle. A more accurate and timely billing and payment process helps cash management.

Engineering/Design. The repetitive nature of prefabrication activities maximizes planning, engineering and design expenditures. A particular “product” can be designed once and repeatedly built, reducing the engineering and setup costs per unit. Time and energy could then be invested in creating products that achieve LEED ratings, offer predictable useful life or durability requirements, reduce life-cycle costs or meet prescribed seismic or sheer requirements.

Labor Productivity. The way prefabrication construction is conducted offers many advantages to achieving and maintaining high levels of labor productivity (see the two graphs in Exhibit 2). The consistent location and repetitive nature of the work allows the labor activity to become analogous to factory or assembly line work.

Installing complex systems such as plumbing, electrical or HVAC can be simplified and sped up in a factory environment. No longer are highly skilled and experienced tradesmen needed to understand the entire system and install each component. Installation activities can be broken down into smaller activities that are completed by many different people. For example, all alterations to framing materials could be carried out at one time, by one person, before assembly. After framing assembly, pipe, conduit, wire and ductwork can quickly be installed into wall panels or building sections, by a team of specialized workers in each system. Connections, trim work and fixtures then can be installed by another set of specialized workers. Using the assembly line technique not only improves consistency, but also decreases the time and skill of individual workers needed to complete the work.

2013q4_todays_prefab_ex2

WHAT IS NEEDED FOR SUCCESSFUL PREFABRICATION EFFORTS?

Some contractors follow the crowd by chasing these benefits and blindly investing in their prefabrication capabilities without doing basic due diligence. Any significant prefabrication operation can fundamentally change the structure of a company and will change how it needs to be managed. Not realizing this beforehand is like playing with gasoline and matches — bad things can happen. At a minimum, companies should be able to answer the following questions:

What is the company trying to accomplish?
This is the first question that needs to be addressed because it will determine the scope, speed and objectives of the prefabrication efforts. An answer to this question might be to achieve a 20% increase in labor productivity by 2020. As the example illustrates, the objective should state a measurable outcome and a defined time frame.

Specific measurable outcomes eliminate any ambiguity as to what success means and whether or not the objective is being met. A measurable goal also gives a company the ability to gauge its progress over time.

Setting a particular timeline for a company to achieve a goal is extremely important and has many ramifications. The absence of a schedule can often derail an initiative entirely, due to a lack of attention and priority. Setting a time frame enables the company to define short- and long-term financial and operational goals, while properly dedicating resources to accomplish them. Successes can be celebrated, and shortcomings can be addressed before they become major problems.

Why is the company making this investment?
At first look, the answer to this question may seem obvious, but a company needs to ensure it can be answered. The “why” needs to be more than just “to become more efficient.” Is the main objective to increase profits, to be more efficient so the company can price projects more competitively, to decrease the needed on-site time for projects, to establish an additional source of revenue for the company, etc.? Answering this will help put the overall prefabrication initiative into a larger context and help management analyze alternatives. There may be cheaper, faster ways to accomplish the overall goal without making substantial investments of time, energy and money into prefabrication initiatives.

Where will the prefabrication facilities be located?
Many prefab operations get their start in the corner of existing company facilities, as seen in Exhibit 3. However, there are many instances where prefabrication operations quickly outgrow their initial facilities and drive a hasty need to expand (see Exhibit 4). From the beginning, make plans for facilities that can grow with the operations. This will minimize the need to buy property, equipment and facilities more than once and maximize the return on every dollar.

2013q4_todays_prefab_ex3

The planned location of the prefabrication facility is fundamental to the overall decision whether to invest or not. Prefabricated assemblies will need to be delivered to the field, so the costs and time associated with making deliveries need to be evaluated. If projects are spread out over long distances from the prefabrication facility, it may be more economical to purchase prefabricated assemblies from other companies closer to the project locations or to field fabricate. Just because a company has prefabrication capabilities that are more efficient than field fabrication does not mean the savings are maintained by the time assemblies are delivered to the jobsite.

2013q4_todays_prefab_ex4

Who will perform the prefabrication labor and who will manage the field operations?
There are two schools of thought around the first part of this question. First, many companies find that the repetitive nature of prefabrication can be carried out by lower-skilled, manufacturing-type labor, resulting in lower hourly wages and a larger labor pool. Other companies have found that their prefabrication efforts are maximized and rework is minimized by having experienced tradespeople performing prefabrication labor, while still benefiting from the productivity increases from the prefab facility (see Exhibit 5).

2013q4_todays_prefab_ex5

Both options work, but it is important to know what the initial intentions are. Using lower-skilled workers will require intense, upfront training and dedicated management oversight. Using experienced tradesmen, on the other hand, may take a company’s high performers out of the field, negatively affecting traditional operations. Decide early.

The skills needed to manage a prefabrication operation are fundamentally different than those needed to run field projects. Effectively managing prefabrication (analogous to manufacturing) requires experience in facility efficiency calculations, inventory management, push/pull analysis, capacity and priority planning, etc. Most organizations either hire an outside manager with manufacturing experience or find it necessary to train an internal candidate. Both may take some time to accomplish.

How will the company roll out its prefabrication initiative?
It is important that management anticipates that any successful change initiative will take effort, planning and time. Prefabrication is no exception.

2013q4_todays_prefab_ex6-808x1024Developing a phased schedule to build facilities, install prefabrication equipment and train labor is the easy part. Developing the systems, process and attitudes needed to support the prefabrication efforts is trickier.

Prefabrication affects project budgets. Project and field managers will want to know exactly how and why their budgets are going to be changed, and making them comfortable with this early is a best practice. Establishing an incentive program for managers to use prefabricated assemblies on projects often helps prefabrication efforts get off to a quick start (See Exhibit 6).

Companies should proactively introduce prefabrication efforts to their existing field personnel. Often, craftspeople perceive prefabrication as competition (i.e., prefab = jobs lost in the field). Managers should explain what the objectives of the prefabrication efforts are, why they are important for the company, and what they see as future opportunities for field craftspeople within the company. Typically, companies do not lay off field personnel due to their prefabrication operations. In fact, in most cases, prefabrication operations increase overall employment due to the additional capabilities and the more competitive cost structure.

THE FUTURE

Prefabrication is a trend in the construction industry that will change how we design and build projects, how fast we build them, and where they (assemblies) will be built. As with any change in technology, the use of prefabrication has many opportunities as well as potential threats. To be successful in the future, companies must be prepared to make educated investments in emerging methodologies such as prefabrication, strategically operate their businesses and relentlessly strive for continuous improvement. After all — what is being prefabricated today is just the tip of the iceberg.


Ethan Cowles is a senior consultant with FMI Corporation. He can be reached at 303.398.7276 or via email at ecowles@fminet.com.

 

Did you enjoy this article? Subscribe here for more FMI content.

Want to know more?