North American homes fall on a spectrum from custom single-family, to large multifamily projects, and most modular manufacturers work at either end. Some specialize in 150-box apartment buildings, while others focus solely on custom homes.
Meanwhile, all modular manufacturers are being approached by an increasing number of single-family developers. The ability to serve these developers is what will allow the modular industry to grow its market share above the current 3% of new homes.
Residential developers need mass-produced homes with little variation, at prices that are competitive with site-built. Most existing factories can’t deliver on that need, and that’s particularly true for custom factories with high overhead costs.
There’s a way around those costs, a way that makes it possible for modular manufacturers to successfully service custom builders and large-scale developers. But making this happen at scale will require an industry reboot: that is, a change in how factories think about themselves and organize their production lines.
To understand why, we need to look at some history. The first region where modular took hold was the Northeast, where most customers were scattered-lot custom builders who wanted to offer their customers high-end finishes, product options and custom plan changes. Factories took steps to satisfy those builders’ demands, which included hiring large design teams. This added cost, but the market could absorb those costs.
The problem is that a custom focus makes it tough to grow market share and to win developer business. Developers understand that modular is a great way to maximize cost efficiency by manufacturing a small number of home plans with limited options. It’s a way to get more houses on their lots in less time. However, developers’ margins are much tighter than those of custom builders, so they need modular homes that are priced equal to, or lower than, site-built production homes.
How does an industry segment that’s used to working with custom builders adapt? How does it apply the cost of custom to the custom builder, but not to the price-conscious developer who wants 100 identical units?
The reboot that makes this possible is for the industry to embrace mass-customization. Fortunately, a lot of other industries, from automotive to high tech, have already done so. We need to learn from them.
In the 90s, for instance, Dell Computer faced a similar dilemma to what the modular industry faces today. The company had two types of customers: individual users who wanted what they wanted in a computer, and large corporate accounts that repeatedly placed high-volume orders with little product variation. Implementing a mass customization model allowed them to serve both.
A company that successfully implements mass customization can manufacture a relatively high volume of product options for a relatively large market that demands customization. And it can do so while maintaining low costs, timely delivery and high quality.
Dell outsourced much of its production. All computers use standard components, and these components were manufactured by other companies and sent to Dell for final assembly. This cut their inventory by 80% and let them customize the standard product much later in the production process.
There’s no reason this strategy can’t work for modular manufacturing. After all, what’s true for computers and cars is also true for homes (even custom homes): they’re assembled from standard products and assemblies.
We’re already used to buying manufactured products like appliances and windows, so it’s not a big stretch to imagine a factory creating (or outsourcing) a menu of standard building sub-assemblies that include wall, roof, and floor sections and even bath pods. These sub-assemblies can be used to configure custom or production modules, depending on the customer’s needs.
Properly implemented, a mass customization strategy will allow a modular factory to earn a profit by delivering energy-efficient, well-designed, high-value homes, and to do so for a variety of customer types.
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