Volumetric Building Companies has engineered an impressive turnaround
at one of the country’s largest modular facilities.
- Katerra’s failure became an opportunity for Volumetric Building Companies (VBC), which acquired the highly automated Tracy, Calif. factory for a fraction of what it cost to build.
- The plant wasn’t turnkey, however. VBC makes modules while Katerra was focused on panelized construction, so a good amount of restructuring and retooling was needed.
- Less than two years after acquisition, the factory is profitably producing modules as well as components. In fact, it has been so successful that VBC plans to use it as a blueprint for future expansion.
Volumetric Building Companies was looking to expand its operations at about the same time that Katerra was shutting the doors on its Tracy, California facility, about 65 miles east of San Francisco. The opportunity was too good to pass up. Now, less than two years later, VBC is shipping the first products from that factory. How have they managed this turnaround so quickly?
Plan, Then Execute
Headquartered in Philadelphia, Pa., VBC designs and produces wood-based volumetric modular structures for hospitality and multifamily markets in the United States and Europe. In the US, their primary market has been the Northeast, serviced by factories in North Carolina and Pennsylvania, with a design and engineering group based in Boston. In Europe, VBC has locations in Poland, Serbia and the United Kingdom.
VBC was looking to expand and, according to COO Sam Tikriti, “The opportunity [in Tracy] came in unexpectedly, so we decided to capitalize on it. [The former Katerra facility] had the location, the size and the equipment, and it made sense to us to accelerate a move to the West Coast.”
The purchase of that facility was primarily financed by an equity partner, Tikriti says. VBC got what (by all appearances) looks like a great deal. “It was a $25 million transaction on what was considered to be a $110 million investment initially by Katerra.”
Yet just because Katerra had been producing modular components at the 577,000 sq. ft. facility — one of the largest, if not the largest modular facility in the US — didn’t mean VBC could waltz in and start producing.
“When we walked onto the shop floor,” says Helena Lidelöw, Chief Technology Officer, “it was actually very crowded with machinery and equipment. We made a plan to restructure the plant from producing small panels to producing modules, and we set a restructuring date of one year until we should be able to output modules.”
They decided early on to sell off some machinery, retool some of it and purchase other equipment, much of it from Europe. New installs included a floor line, a ceiling line and an automatic assembly line.
For example, VBC removed a window production line inherited from Katerra that had more capacity than they could use. They sold it to a window manufacturer.
Making choices was “pretty rough because the Katerra facility was full of really wonderful equipment. Much of it was brand new or less than three years old,” Lidelöw says. “Deciding not to keep some of it wasn’t easy.”
For the first six months in the Tracy facility they proceeded slowly, Lidelöw says. “We produced some modules in September 2022 just to teach the crew how to do it.”
Floor Show
The Tracy factory includes two core automated production lines. One is the modular production line, which consists of floor, wall and ceiling stations. It can produce one wall every five to seven minutes and can do so with as few as three operators. “Building the same wall on-site takes 32 minutes to complete,” Lidelöw says.
The module line “is capable of producing about 21,000 square feet of modules per week, or 10 modules per shift; almost three times what we were capable of producing [in the North Carolina plant],”Tikriti says. Each module measures 15 ft. x 36 ft.
Another existing automated line produces cabinetry. “It’s considered to be one of the most advanced in the US with an output capacity of about 1,500 cabinet units a week,” Tikriti says.
One thing VBC has done with its production lines is to make each its own source of revenue. Take the example of the cabinet line. “We have much more capacity there than we can self-consume, so we have third-party [cabinet] customers,” Lidelöw says. “This keeps us in check with pricing and helps us understand what the market really wants.”
She adds that the modular line also is its own cost center and can produce for different types of customers. “We don’t restrict ourselves in terms of design,” she says. However, she adds that affordable housing, where modular has an advantage, is a large part of the product mix.
The company is careful about the types of projects it takes on. Using what they call a “modular optimization score” during the design phase, Lidelöw says they analyze the degree of repetition in a project to assess if it’s right for their factory. “If you have a good ratio, you will have few changeovers and some degree of repetition. You can get some economies of scale and will have the possibility to set up production so that it’s not suddenly interrupted by a special module that comes in the middle of everything.”
Tikriti says that compared to a more traditional facility or one with less automation, he believes this plant’s efficiencies offer a potential 15% to 20% savings on product cost structure. “I think we can realize a lot of that [savings] once we get to the optimum production output from this facility,” he says.
Beyond Machinery
The facility and the state-of-the-art equipment are major pluses. But VBC’s success depends on more than those physical attributes, Tikriti points out.
There were the strategic decisions early on to focus on markets and products that would offer growth and profit and continued sustainability. “For any operation starting in a new market you have to know that you have the commercial business — the customer base — to support it as well as a cost structure that can be supported by that market,” Tikriti says. For VBC, California, and the West Coast more generally, is the right place.
VBC also has among its staff years of experience and collective knowledge “about optimum performance and operating metrics based on the thousands of modules VBC has delivered,” Tikriti says. In addition, Lidelöw says, “We were lucky to tap into some former Katerra employees [who now work for VBC].”
The company also had brought with it experience from designing, manufacturing and installing modular products on the East Coast. “By doing the same market comparisons here in California and the West Coast, we saw that we are able to provide the same level of quality product,” Tikriti says.
One element that really helped streamline their ramp-up, Tikriti says, “was the cooperation and support we received from the local authorities and jurisdictions that we’d been coordinating with for permitting purposes. That was critical for us.”
But nothing comes without risk. Lidelöw ticks off a few they have faced: “the market and the market appetite for our products, the availability of skilled people to work in the plant and getting materials in on time,” particularly considering supply chain issues.
She says they have mitigated these risks because of their experience and by connecting with their contacts internationally and through longtime VBC employees. “When we think about possibilities, we think beyond Tracy, as an international corporation. We can help each other do things.” By way of example, she mentions the cabinet line. “We produced cabinets that were shipped to the East Coast.”
As for skilled labor, VBC has tapped into the former Katerra employees’ contact network and has also built “relationships with the city of Tracy and with the trade schools and universities,” Lidelöw says. She adds that despite the high-tech surroundings, the equipment is low-tech enough that employees don’t have to be heavily trained. “You don’t have to understand everything to make something work. You can understand three stations and contribute to the whole.”
Material shortages haven’t been too much of an issue Lidelöw says, noting that before they start a project they need 250 to 300 SKU items to build one module. The one area that they’ve felt supply disruptions has been related to the microchips needed for smart home electrical units. But, overall, materials for their floor, wall and ceiling lines (which use structural lumber, sheathing and nails) have been easy to source, as have the materials needed for the electrical and plumbing.
Factory 2.0
In December 2022, VBC began putting out its first modules, for a Bay Area multi-story project. Tikriti is thrilled with the company’s progress in Tracy.
“We’ve positioned ourselves in the West Coast market. We’ve retooled the facility to produce product at a much more automated rate with a much more efficient process. We’ve added a new product line to our portfolio products. We’ve been able to bring all the experiences of the various team members, including Helena [Lidelöw], here to build what we consider to be the factory of the future as it relates to modular production and modular construction.”
Tikriti calls it the “Factory 2.0 Blueprint,” describing it as “a scalable, repeatable, deployable blueprint designed with optimum performance and operating metrics based on the thousands of modules we’ve delivered.” He believes that the Tracy facility has just the right amount of automation in place to allow for efficiencies to be realized on the production line, “as well as a level of profit and growth that can be maintained. This is helping us really start looking at what the modular factory of the future will look like.”
As VBC continues to grow in its primary markets, the company is exploring potential markets in the Middle East and, perhaps, in the next two years another US factory. Success breeds success.
