Vertical integration is a strategy that, in theory, allows an offsite manufacturer to streamline and optimize its operations by taking direct ownership of the different stages required to produce and build a home, instead of relying on outside contractors or suppliers. A lot of companies have been attempting to — or at least contemplating how to — become vertically integrated modular entities. This is a very positive development.
A truly integrated modular company will own, or control, all five key stages of the process: Design, Manufacture, Delivery, Installation, and On-site Finish. Of course, the fact that each stage relies on independent and unique skill sets helps to explain why implementation of this strategy has been, so far, hit-or-miss. That’s unfortunate, because a non-integrated company is more likely to make decisions that range from short-sighted to just plain bad.
As a simple illustration, consider how two different modular manufacturers might design the gable end panels for a pitched roof.
Manufacturer A is not integrated, so it has a myopic focus on what’s happening in the plant, and it designs and manufactures panels that will be installed after the roof has been raised. For each home, four to six individual panels must be transported to the site, and that transport may require an extra carrier. They must also be individually rigged, lifted and placed. By my estimate, the crane and set crew cost will be approximately $150 per panel.
Manufacturer B, by contrast, has its own set crew and, as a result, takes a more holistic view. It hinges those panels on top of the modules so that they can easily be lifted into place by a pull rope. It might charge $300 for installing four hinged panels at the factory, but that extra work will save $600 worth of picks in the field — a net savings of $300.
In my world, if you save me $600 and only ask me to give you $300, I’ll take that transaction every day of the week. The problem is that Manufacturer A, the one without vertical integration, thinks they are helping the builder by saving $300 in the factory. Their narrow view blinds them to the net savings of $300 that hinging will save the builder over the entire process.
But while the integrated company can take a broader view of things, its need to think through different processes requiring different skill sets tends to complicate the making of decisions. In order to make good decisions, it needs solid evaluation criteria.
The three criteria a vertically integrated company needs to consider when evaluating any type of change or modification are cost, speed and quality. Before making any change to any aspect of modular construction, the company needs to ask three questions: Will costs go down? Will speed increase? Will quality improve? If the answer is “yes” to all three, then the change is made. If any one criterion looks like it will trend in a negative direction, the answer isn’t an automatic “no” to the change, but rather it becomes a case-by-case review.
The gable end panels are just one example of the application of these criteria. A vertically integrated company will likely have hundreds of such opportunities.
Eventually, experience will teach the company that optimal results always start with good design. In fact, the three most important things in modular construction are: 1. Design, 2. Design, and 3. Design. The best designs are informed, from the beginning, by those other four aspects of modular construction, and the way to ensure such designs is to have a cross-functional team with strong knowledge of all aspects of the modular construction process. That’s the power of vertical integration!
If you liked this article, you can follow Ken Semler on LinkedIn, where he offers daily insights and commentary about offsite construction.
