Learn how the building industry is moving towards offsite, modular construction and how you can stay ahead of this building materials shift.
Tim Seims joins the show to discuss how building material manufacturers can start incorporating pre-fab construction into their business — and why they should.
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In this episode, Zach and Beth talk to Tim Seims, Market Segment Manager at Nichiha USA, about the importance of pre-fab construction in the future of the construction industry.
The Growth of Offsite Construction Globally
Nichiha is a Japanese company, a country where 20% of the construction is pre-fab and built off-site. With the amount of talk and events popping up in the U.S. about this topic, Tim Seims realized it was time for the company’s U.S. division to start coming up with a new approach to handle modular construction orders and needs, from a marketing strategy to a pricing strategy to a logistics strategy.
Leveraging Nichiha’s experience in Japan, the company created a full-time position for Tim to champion this category as the segment manager for off-site pre-fab modular construction.
The Rising Need for Pre-Fab
While many people in the construction industry remember pre-fab being a passing trend 20 years ago, Tim says that things are different now. There is a totally different market now, and this time, there’s data to back up major challenges facing the industry, such as the labor shortage and inefficiencies, which can be reduced or solved through modular construction.
In fact, a 2017 McKinsey report revealed that the construction industry spends trillions of dollars each year on inefficiencies and is the last industry to adopt new processes. After reading that report, Tim realized that the time to get prepared for the increasing pre-fab trend was now.
Reducing Friction for Your Customers
A common theme in the building industry is friction in the supply chain, which includes pricing, lead times and product assembly for kits of parts. It’s important for manufacturers to disaggregate the margin that gets tied up here. Oftentimes, the conversation starts with whether or not a customer can buy direct. Manufacturers can choose whether or not to adopt this, but either way, you need to provide a solution.
In many circumstances, reducing friction for your customer involves reducing the number of players in the middle, which adds unneeded cost and turnaround time for each step of the conversation. The cost of time is big, so even shortening the time it takes to get a quote helps.
For instance, there was recently a hotel built pre-fab in New York in just 90 days. In a timeline like that, there’s no room for a week’s worth of conversation between the manufacturer, supplier and the modular project owner.
Another long-term issue for the cash raisers and innovators is the need for research and development. As time goes on, customers may want different sizes or assembly processes. You need to think about what you would do with your product if you were starting fresh today. To reach your design intake or budget qualifiers, what would you need to change? According to Tim, you need to figure out how to make these things happen without thinking of the history of the business.
Tim shares a success story from Nichiha. The typically packaging on architectural wall panels use to require 10 to 11 line items. They’ve now reduced that to 6 or 7. While simplifying the systems, they’ve also managed to raise the price with this one simplification. He says this type of reduction is an opportunity for manufacturers.
Tim cites three key components you need as a building materials manufacturer considering getting into modular construction.
- A point of contact that knows modular pre-fab
- Simplification of the product line
- Simplification of the purchasing process
Why Constructions Problems Are Fueling Pre-Fab Investment
There are two major issues in the construction industry that Tim sees as the largest contributors to the rise of modern modular construction.
The first is demographics, particularly what the workforce will look like in the next 5 to 20 years. Unless the education system does something drastically different, there won’t be enough trade level workers in construction.
In anticipation of solving that problem, the industry can bring in construction to a manufacturing facility and hire a different caliber of factory worker. This isn’t as difficult as trying to get someone in the trades.
Utilizing advanced factory employees opens up your workforce to a much broader audience. In Japan, Tim says that women primary run the machinery in factories. This role has been embraced in the culture, and they’ve also found that women aren’t as hard on the machinery as men. Off-site pre-fab manufacturing allows companies to get a different worker than in today’s construction industry.
A second incentive for using pre-fab is the ability to get large scale buildings completed more quickly, especially for developers. Student housing, for example, has a big demand. But if the developer misses the August leasing period, they miss out for the entire year or have to make costly concessions to get students in the building.
Similarly, there’s a huge need for hospitals as the baby boomer generation gets older. The speed of construction directly affects people’s quality of life, causing a definite trickle-down effect throughout all parties involved.
Advice for Manufacturers Considering Pre-Fab
According to Tim, the first step to starting a pre-fab component to your business is appointing someone in your company to become the expert, even if it’s just a part-time responsibility. This person should start attending events and getting to know industry players. Tim notes that the modular off-site pre-fab industry offers a true sense of community and people are willing to help.
The big focus now is on thought leadership, which basically means becoming an expert. The pre-fab industry has developed into a culture and the basis for any culture is language. Consequently, you need to develop your glossary. You need to understand the terms particular to the modular industry to be able to have deeper, more relevant conversations around this segment.
Start by browsing materials from the Modular Building Institute, joining trade industries and following relevant groups on LinkedIn. Reach out to other experts in the field and ask questions.
Once you’ve begun to build your company’s expertise, you need to look at your purchasing processes. Think about how you can reduce friction in your purchasing process, even if it means bringing in a supplier as part of the conversation.
Finally, no matter what role your company plays in the supply chain, get as close as possible to the end user. Tim warns that suppliers may worry about being counted out. You can avoid this, however, by adding value and creating solutions.
Other at-risk demographics in the pre-fab world, according to Tim, are independent lumber yards and two-step distributors. Again, success in this sub-segment involves getting closer to the end user and adding value as much as possible.
Want to know more about the future of digital marketing for the building materials industry? Listen to our podcast about 2019 digital marketing trends. And if you have questions about how to prepare your company for a pre-fab component, email them to us at [email protected]. We’d love to help you get started.