Tampa, Florida New Home Builder Southern Crafted Homes

LEAN BUILDING FROM THE LEAN BUILDING FORUM – PROFESSIONAL BUILDER MAGAZINE

The Lean Building Forum – with Scott Sedam, January 2010

	About the host          Scott Sedam hosts the Lean Building Forum where each month he interviews those who are implementing the principles of Lean operations in home building. Sedam is president of TrueNorth Development in Northville, Mich. He can be reached via email at scott@truen.com.  For the complete transcript and audio of the Lean Building Forum interviews, visit www.HousingZone.com/Lean
	This month’s guest         Jim Deitch is the chief operating officer for Southern Crafted Homes in Tampa, Fla. He began his career in the home-building industry 20 years ago in Orlando, after having completed three tours of duty in the Marine Corps. Deitch is a State Certified Building Contractor and currently is serving as a Builder Director with the Tampa Bay Builders Association. He holds bachelor’s and master’s degrees in business administration from Delaware Valley College and the University of Phoenix, respectively. When not involved in industry business, he can often be found supporting the Susan G. Komen Foundation, boating and spending time with his wife and daughter.

This is the complete transcript of an interview for the Lean Building Forum in the January 2010 issue of Professional Builder magazine. Check out the condensed version of this interview and the complete audio transcript (30 MB MP3 file). We welcome your comments and feedback at scott@truen.com or dbarista@reedbusiness.com.
Scott Sedam: Hello and welcome to the first Lean Building Forum on HousingZone.com/Lean. I am your host, Scott Sedam.  You may know me as a building industry author and or a conference speaker.  Most of my time, however, is spent as president of TrueNorth Development where our primary focus the past few years is helping builders, suppliers and trade contractors implement Lean thinking, process and methods.  As such, we have met a wide variety of interesting, dedicated people who are pioneering the adoption of Lean principles in homebuilding.  Throughout the Lean Building Forum each month we will bring you their stories and advice with the goal of helping all of us lead the industry forward to a new era of profitable building and customer delight.  There are many definitions of Lean but the simplest one for our purposes is this: Lean is the relentless pursuit, identification, and removal of waste in all forms of product and process. Getting rid of waste applies to every department and every level. Lean requires tools and techniques, but more than anything it requires the guts to confront our wasteful practices and long held beliefs and the discipline to make the changes stick. The Lean Building Forum will feature those who are leading the way. Today we’re talking with Jim Deitch, Chief Operating Officer of Southern Crafted Homes in the Tampa area.   Jim, welcome to the Lean Building Forum.

Jim Deitch: Good morning Scott and thank-you for having me.

SS: Let’s jump right in so people can understand where you came from and how you got to where you are today in your present position with Southern Crafted Homes.

JD: Well, I’m originally from Pennsylvania. I grew up there as well as overseas.  After I got out of the Marine Corps I relocated to Florida where I started my career with a major national home builder.  My career in the Marine Corps really didn’t lend itself to the civilian world so had I to retrain and some of the national homebuilders have good platforms for that.  I started off at the bottom doing punch out work, was an assistant superintendent and I worked in pretty much all of the departments; warranty, production, purchasing, quality control – back when quality control was really a brand new concept to the industry. This was in the late 80’s early 90’s and then went into sales before moving into executive management positions.  Prior to my current position I served as the Senior Vice President of a large active adult home builder here in Florida and I’ve been in my current position as Chief Operating Officer of Southern Crafted Homes for 4 years now. 

SS: That’s something pretty remarkable. I knew somewhat about your background Jim, but I didn’t know you’d also been in sales.  As we’re going to talk a little later, there’s some really important aspects of Lean that some people are missing these days or else they may be even abusing it, and having been in sales is something that undoubtedly helps you gets around that. Tell us a little bit about Southern Crafted Homes, what you are building down there, a little of the company history, what you did this year and what you’re planning for the next year.

JD: We’re excited about the coming year.  In 2010 we’re going to be celebrating our 20th anniversary and in a tough economic situation. You’ll recall that 20 years ago 1990 we were launching into the last significant downturn in the market, so we started in this business in down times and very humble beginnings.   We did about 17 homes the first year and have continued to grow.  Our area of operations  focuses on north Tampa, an area called New Tampa, and Pasco County which is a suburban county north of Tampa Bay.  We build upper and single family detached homes and most recently in the last few years got involved in luxury villas.  Over the past 5 years we’ve averaged about 90 homes a year.  It’s dropped off a little bit in the last 18 months but if you average it out over the last 5 it’s been about 90 homes a year and 2010 we plan building 110 homes. So a little bit of modest growth is planned for the coming year.  (ed. note:  Jim’s “modest growth is actually > 20%!) We’re going to continue with the product line that we’ve got. We’ve toyed around with changing some of the make-up of our product and we have tweaked it a little bit, but because so many builders have left our price point and the size of our home moving downwards into a smaller product it’s left a little bit of a void and we really want to stay true to what we’re known for.  So not much change in that respect.

SS: Let’s talk about that a minute Jim because it’s really pretty remarkable.  You know we work with builders all over North America and it’s a rare builder we meet that didn’t drop at least 50% in their volume in the last 5 years and 60%, 70% even 80 % isn’t unusual.  There are a few that came back up a bit this year but you are actually planning next year of doing, if on a % basis, significantly more than your historic average.  How can you account for that? Why has Southern Crafted been able to withhold the onslaught compared to most builders out there?

JD: I don’t want to mislead, I mean the last 18 months I did mention that we dropped off slightly, but looking forward to 2010, I mean, if you look at any cyclical nature of our industry there’s a beginning and an end and I think you plan for success rather than for failure, I mean, we need to be realists, but this cycle has to have an end.  What we know from the economists is that there’s a certain amount of homes that are going to be built in the Tampa Bay area this year and because of the drop off with builders that have gone out of business or closed the doors by choice, or simply withdrawn from the market that number of homes is still going to be built. So as we target the amount of homes that we can get within our size and price point we have a greater ability to go ahead and take that share that we need to be successful so we’ve identified the numbers that we’re targeting, we’ve identified the numbers that are realistic and projected and then are working towards what we need to do to be able to capture that. The Tampa Bay area is unique in that, like most of Florida we rely heavily on people coming into the state for various reasons. Tampa Bay is not a service oriented community.  There’s a lot of military here. There’s a lot of medical and education here and there’s a lot of businesses relocating, so what we’ve got is really primary buyers that are, if not a heavy influx, a steady and constant influx.  And so with our price point and again the demographics that are coming into the community it’s really a good fit.

SS: Well it’s really an impressive story. For the audience’s benefit I’ll say that Jim’s really being pretty modest here.  One of my best friends in the industry 3 years ago was building 220- 250 units a year in Jim’s marketplace and he’s out of business now for nearly 2 years.  So Jim and Southern Crafted have really managed to figure out their business and how to keep it healthy far beyond the norm. I have some history with Jim and I want to relate this story because I think it illuminates a little bit about why I picked you to do our inaugural event here on the Lean Building Forum.  In our firm we’re always coming up with the newest, latest, greatest things and how to implement Lean.  I’ve known Jim for a long time, back to the various Benchmark meetings that Professional Builder had and industry events and he’s one of these guys when you meet you feel like you’ve known him forever and he just “gets it.”
 
With Jim, you know you can talk immediately about the issues in the industry and he always understands and is usually a step ahead of you.  Every time I would send something to Jim or call him about something he’d say “oh yeah we got that, oh yeah we’re doing that”.  And I’m used to hearing that from people in the industry and it’s always, yeah, well, they think they are doing it, but they really don’t.  But Jim’s always has been the exception.  He really does, and contrary to having that aggravate me it always kind of makes me smile because we have to have the leaders in this industry who are pushing ahead and showing the way and  Jim Deitch is a guy, that to me, has been at the top of that.  So Jim, when we talk about Lean methodology, and there are a lot of terms that people say, Lean thinking, Lean process, Lean methods, Lean production, what does it mean to you?  From your point of view in your company what’s it mean to say you’re a Lean builder?

JD: Well, you know Lean is one of those things that really is an approach towards efficiency, and the low hanging fruit is to go ahead and reduce your costs. But really Lean is about operating on a daily basis constantly looking at your product, your processes, your company, not just what happens in the field but what happens in the office, what happens in the sales office. One analogy I might give and I don’t want to mislead anybody, I’m not a mountain climber, but I’m really in awe of mountain climbers as I watch what they do. They’ve got a limited amount of resources that they can take to the top of that mountain and they are restricted by physical constraints and all of these other things and so they have to conserve energy, they have to conserve resources and yet the goal is to achieve the summit and that’s kind of where we’re at today.  It’s more important today in a bad economic downturn but we actually started focusing on this heavily back in 2005 – 2006 when the market was going crazy and I was concerned about how many dollars we were leaving on the table by not paying attention to the details. So you know it’s really about being the most efficient and effective with limited resources, maximizing profitability, maximizing quality and holding everybody accountable. Lean thinking is to me is all about brutal honesty.

SS: That’s an interesting term.  I remember in the book by Jim Collins, “Good to Great,” one of the most important aspects of an organization’s ability to get from merely good to truly great was “to face the brutal facts.”  So what’s that meant to you guys on a practical basis or how does that play out? Do you have any examples of how Southern Crafted had to face some brutal facts in order to move from the good to great level?

JD: Well, whenever you’ve got a 20 year reputation and a 20 year history there’s going to be ups and downs. But the beauty of where we’re at today is we do have a very solid reputation, we’re well thought of by our customers and we’re well thought of by the realtor community which is very important to us.  We had a focus group when I first got here 4 years ago and they had some customers and some realtors split out into 2 different groups. They were doing a word association exercise and they went through a list of builders and finally they came to Southern Crafted Homes and the word extreme quality was used.  You know when somebody says something like that it’s a lot to be proud of but, the reality of what I was seeing on a day to day basis is we had earned that reputation but we weren’t practicing it at the moment. So you know we really have to, on a day to day basis, get the entire team and in addition to our employees that includes trade professionals, contractors, engineers, designers, and my marketing people to all stand on the same side of the line and look back at our baby and ask, “Is it truly the most beautiful baby in the world or maybe is there something we can do to make it better?  And until you get everybody standing on the same side of the line it is a conflict and a challenge to get that done. So the first thing that I found in my process and in this whole methodology was to start with people and make sure the culture, the mentality and the thought processes were right before we could fix anything.

SS: You know a lot of people who launch into Lean tend to fixate on the tools in the beginning. The six sigma tools are great stuff but it’s one of the most common mistakes made and you mentioned what really has to be done right is to really work on the culture first.  How do you do that?

JD: For us it was fairly easy, I work for the owner of the company and I report directly to him, he’s an amazing man.  He’s very focused on core values.  We have a great core values mission statement.  We have a limited amount of core values, there are a lot of core values that we espouse but our core values in our organization are honesty, integrity, respect, a quest for excellence and a commitment to quality.  Understanding that quality is kind of a throw away word but we define it very well I believe. So by using those 5 words to guide everything that we do we make all of our decisions whether it’s hiring, terminations, recruiting, product lines, how we sell, everything is based around the core values.  So we had to size up the team pretty closely and make sure that before we proceeded down any path that every member of the team epitomized the core values and were able to use the core values to measure progress and measure their own actions and activities.  And that took a while. 

We had a lot of turnover as we went through that exercise.  But as we recruited new people and really focused on the core values and the culture of the company we got it back to what that vision of the owner was.  When he started the company he was doing everything himself.  He wore every hat so it was very easy for him to protect that core value and that culture because he was it.  As you grow a company and create the cultural and corporate structure protecting those core values becomes difficult because you get a lot of people who want to introduce their ego into it, their personality into it, so the next step for me was to go ahead and make sure that number one I put my own ego and personality in check and put the corporate culture ahead of that and then made sure through leadership and through the people I selected that we protected those core values and that culture and that attitude. Once we got that straightened out and we were convinced that we had the right people on the bus as Jim Collins says in his book then it was now time to move forward and start addressing the procedures, and the policies and practices and how we were going to go about creating quality and being an efficient Lean organization.

SS: Jim, how many direct employees do you have at this time?

JD: Well, interestingly enough, I wiped out almost my entire senior management team and all of my middle management team. So we currently are sitting right at about 24 employees. There is our president, myself as chief operating officer and then I have one executive, my VP of sales.  All of the sales team reports to him and the balance of the organization reports to me.

SS: And when you say wiped out, was that done because of financial necessity or because these people were not good fits with the direction you were going or what?

JD: It wasn’t out of financial necessity, what we found was that when I first came on board we built 95 homes in 2005 with 11 people in the construction department.  Two years later we built 120 homes with 3 people in the construction department. So cycle times were out of whack, quality control was out of whack, costing was out of whack and the purchasing dept was bloated.  There was too much time spent looking for new contractors at a lower price as opposed to focusing on having the right contractors at the right price.

We had a very bloated structure.  I think there were 3 or 4 tiers of management in the construction dept. alone. So we went about right sizing first.  The next part of it was questioning why we needed to have managers translate the message from the executive team down to the front line employees.  Why were they not empowered to go ahead and understand the culture and their job and be accountable to do that job without somebody standing behind them and watching them all the time? And so it was just really a different approach to how we were going to structure the company moving forward.

SS: You said something interesting a minute ago that tied into a conversation I was having last night with an old industry friend of mine from out west.  He is now running a big company that supplies a key product in our industry and he had a meeting with a regional purchasing VP for one of the big national builders. At that meeting the purchasing VP said, “Let me put this on the table right now, relationship doesn’t matter, quality doesn’t matter, all the other things people talk about being important, we don’t care.  The only thing we’re going to make this bid decision on is initial price.”  And I sat here a little bit shocked thinking how in the year 2010 someone is still approaching purchasing  that way.  You talked a minute ago about getting not just the cheapest supplier trade but the right one at the right price.  Tell me your reaction to the builder I just described. Why they are thinking that way and how you guys approach it in contrast?

JD: Well, I don’t ever want to pay more, or much more than what the market should pay, but what I’m seeing and disappointingly so is a return to the old style of purchasing, the purchasing that we saw back in the mid to late 80s and early 90s; where somebody handed somebody a set of blueprints and said give me the best price. Our approach to that has always been about total cost as opposed to first cost.  I remember a great quote from Dr. Deming.  Somebody asked him,”Dr. Demming I really like that pair of shoes you are wearing, how much did they cost?”  He said it, “I don’t know. I’m not done wearing them yet!”  And I think that’s the best illustration of how we need to approach purchasing. You can get the first cost but if you do that you are never going to really know what your total cost is.  So we very much focus in on what am I getting for the price? What’s the scope of work? What’s the specification?  How much supervision am I going to have? What staffing am I going to have? What’s the cycle time to produce the work?  What’s the warranty period?  Who’s going to do the warranty? How quickly can we expect warranty to be addressed?  All of those things are important and relevant to the question of cost.  So the person that demands, “Give me the best price you possibly can (period)” is really doing themselves a disservice and really has no idea how much profit they are going to make, what their margin is going to be, what it truly is going to cost them to do business with that contractor or supplier.

SS: In speaking with my friend last night, I said what that particular gentleman guaranteed was that he would never get to the lowest total cost if all you do is focus on that initial lowest price.  When you relayed the Deming story about shoes, I had a big smile on my face, because I think the first time I used that story in the industry was about 20 years ago at an NABH-IBS presentation I did and most of the audience looked at me like I was out of my mind, or at best had a blank look with no clue what I was talking about. I realized at that time that wow, we have a long way to go. We have progressed tremendously and there are people who do “get it,” but you still run into examples like the one from last night. The large companies especially seem to have forgotten everything they have learned.  Of course they are under pressure probably from up above.  Jim, you having been a core member of a large national can understand what they go through in the public companies.  But again the name of the game is how do you increase your profits and the pure focus on initial price will never get you there. 

SS: You mentioned that you had to turnover some of your own people.  It’s interesting when you get into Lean thinking, Lean methodology, sometimes people have a big misconception that we’re going to create something that’s all sweetness and light and everyone’s going to hold hands every morning and sing Kumbaya and march off into the sunset with money falling our of our pockets.  There often is some turnover because people aren’t able to adapt, aren’t able to fit with another approach.  Did you experience any of that with your suppliers and trades, even some of them that you might have had for quite a long time?

JD: Actually we had far fewer turnovers in our trades and suppliers.  It was a breath of fresh air for them.  75% of our trades and suppliers have been here for all 20 years that we’ve been in business.  We covet those relationships.  The one thing that I find with trade partners in particular is that they really desire to have leadership.  Not having all the resources themselves within their organizations, if they can get their builder partner to provide leadership and guidance and we can demonstrate to them how they can make a better profit they will tend to follow you.  If you push them around and dictate to them what their pricing is going to be and tell them what they are going to do, like anybody else the trades are going to push back. I’ve had much greater success with the contractors and the suppliers than I’ve had with the employees.

SS: That’s fascinating.  We’ve run into that.  That the trades are so often just waiting for someone to come and show them that they are willing to work with them in a different way.  I’m always amazed at how much they have to offer if we truly give them a chance and a mechanism and a vehicle for doing that.

JD: You put them in a room and I learned, I think it was 1991, how to do the price non-conformance exercise that Philip Crosby used to teach.  If you sit a contractor down and say what’s your number one call back item and then you put it up there on the board and then you ask him line item by line item what’s it cost for you to come back and take care of that call back item?  Their eyes continue to get wider and wider as you add up the costs.  They had no idea. Then you compound that over the number of houses they do over a year, you’ve got their attention. They start throwing money at you at the end of the exercise.  You don’t to them and say give me 4% off.  You go to them and show them how they can save money by being smarter business people and all of a sudden they are wanting to pass the savings through to you.

SS: You’ve heard me jump up and down and scream for years and years about the wasted or otherwise unnecessary trips to the building site.  And so few people seem to truly understand that, understand the cost of it. In this process you’ve worked with your suppliers and trades, have you made progress in that area?

JD: Oh absolutely!  In one particular case we cut our stucco costs in half just by showing the contractor how to manage his process, purchase better and do his estimating better. 

SS: I’m working on the math here, but that’s probably a little bit better than you get with a 5% “demand letter?”

JD: That’s a heck of a lot better.

SS: It is remarkable people will send out demand letters saying give us 5% or give us 10% or we’ll kill you, and they often do.  And they walk on them. Then you described how you went to your stucco contractor and you got 50%, not 5% or 10%.

JD: I remember, this is going back probably to 1993 and I was out in the field as a superintendant and I got an invitation to join the purchasing department within the organization I was in. I really didn’t want to get out of the field, I enjoyed working with the trades.  This person who wanted me to come in and asked me, said “Why don’t you come in for 4 or 5 days and watch what we do, and if you like it come on in and if you don’t you can stay out there, but this will be good place for you to be for your career”.  So I went in and the first day that I was there they had a memorandum come down from corporate that they needed to slash costs by 5% and so this individual decided that he would call every one of the trades and he had all of the purchasing agents do the same thing letting them know that they had cut their costs 5% by the following Monday or they didn’t have the work anymore.  I guess that’s the easy way to go about doing it.  But he got some short term gains and he alienated a lot of people real fast, so while they rolled over to keep the business in the short term, they also immediately started looking for new accounts and in the end the purchasing dept. lost and I made the decision to stay in the field.

SS: As anyone who’s ever worked on the trade-supplier side knows they have a lot of ways to get even and you can make-up that 5% very quickly on the downside.  One of the that things that I find remarkable is that I rarely meet a builder, probably only 3 or 4 times in the last 20 years, who ever sat down and was good enough to be able to negotiate with the trades for their best crews.  I had a session where we had a plumber who said “Look I have 12 crews, all of them are great, some of them are a little better than others, and every Monday morning I have to decide where I’m going to send my best guys and where I send my weaker guys.  My best guys are going to get done faster, quicker, better quality, everything is going to work right and you’re never going to have a callback.  Some of the other guys, maybe it’s going to take them a little longer, your schedule is going to hurt a little, trying to work with them, bring them on, doing the best we can do with them.”  And his challenge to the builders in that group was, ”Are you going to be the builder that motivates me to say I’ve got to send my best guys to you?”

JD: Kind of interesting, my electrician has been with us for 20 years and they do our work and they also do the largest builder in Tampa Bay.  I do less than 10% of the volume of the largest builder and they get his worst crews and I get his best crews.

SS: And why is that?

JD: Well, we pay our bills on time.

SS: Now there’s a concept!

JD: We’re religious about that, if you turn your bills in you get paid in the next cycle period.  No exceptions.

SS: Does the builder ever save a dime, obviously I’m loathe to have to ask you this, but does the builder ever save a dime by delaying payment to their trades?

JD: No

SS: It’s absolutely remarkable but it still goes on that people think they’re actually making money on that float, you know, float things out to 60 or 90 or even 120 days.  So we’ve got a small builder like you paying on time every time for completed work and because of that you get the best trades guaranteed.  You more than make up whatever few percentage points they think they’re making on that float.

JD: Well you have to do a little more than just paying on time obviously. But that’s huge because what the perception is, is that if you float the money on a contractor you’re building your homes on their dime.  And that’s not the way it’s supposed to be.  We put the risk out there and we get rewarded for the risk but we’re relying on a lot of people for our success and we have to treat them, you know one of our core values is respect and that’s one of those things that we have to do to show that respect is to not try and operate our business on their backs. They are a part of the team and we have to treat them like part of the team. They are smart and they know what you are doing. The best way to do business is don’t play games, be honest, and be partners.  They won’t be there for you when you need them if you’re not.

SS: Jim, one of the hallmarks of a strong, Lean organization is discipline.  You have an unfair advantage there because you were in the Marine Corps and as I recall you were in Desert Storm and got a lot of experience.  And I know from what I’ve learned of your organization, discipline in your processes is a big part of it.  Describe to us how you do that and how hard was it for the organization to adapt to that and how important it is.

JD: Well, coming from a small entrepreneurial environment, one of the first things that I saw was that there was a lack of documentation.  When I went into the Marine Corps we went through 14 weeks or so of basic training.  We had a Marine Corps manual and there wasn’t a single thing that you did in the Marine Corps that you didn’t have some type of manual that told you how to do it in extreme detail, and  so that was the first thing that was glaring to me. When we were real small and acting in that entrepreneurial environment you can do all that one on one.  But when you start growing a company and you have got new employees coming in and you’ve got a war anthem, where’s the document that tells them how do you inspect a lintel?  Where’s the document that tells you how to conduct a final orientation?  So the first thing I did was start creating manuals for every one of the departments.

We started with purchasing, administration, we did one for sales, for construction, for warranty, very thorough. Of course a lot of what I put in these documents were things that I’d accumulated and learned over the years from other places but you take the best of what you know and you incorporate it and you discard the bad. There’s a lot of years of attending the Benchmark Conference and the International Builders Shows where there’s just great information to integrate.  After you put these manuals and this documentation into place, the next thing you have to do is train it and you have to train it heavily and constantly and make sure that everybody understands it and how do you go about using these manuals,  checklists and the documents you need to use to ensure continuity and quality.  The next part that you put into place, and again this probably comes from my Marine Corps background, but when people do not follow the processes and procedures you have to instill discipline. Discipline can come in the form of coaching first, which is simply saying I’ve pointed you in the path, but you’ve got off the path, so I’m going to bring you back on to the path and again this is how you do it.  And counseling, which is “I’ve told you over and over again this is the path you are supposed to go down and you are not doing it so here’s what the repercussions are if you don’t follow it.”  Finally, for those people that simply don’t get it, you invite them to seek excellence elsewhere and get off the bus and replace them with somebody that can be disciplined and follow the policies and procedures and have that commitment to the core values and the culture and get it done the right way. 

What we find in our organization is when there’s a problem that comes up, and I’ve always been a big proponent of saying this and I probably stole it from somebody else, but a problem is not a “who” problem until you make it a “who” problem.  It’s always a “what” problem, meaning that is that if you encounter a problem where quality was not delivered or customer experience is not positive or we didn’t fill out a contract properly, more than likely there’s a problem with training, with documentation, with the process or with the procedure.  So you go there first and you try and determine if you made a mistake? Have not been clear? Did you create the process but not train the process? Did you not discipline and coach the process? You go through that exercise until you’ve figured out that yes, you’ve done everything you’re supposed to do and then and only then does it become a “who” problem and that’s when you have to discipline it and say you know we’ve done everything we are supposed to do as an organization but this individual just doesn’t get it or won’t get it and so we need to make a change.

SS: One of the things with companies that document very thoroughly, and t is often a hang-up, is that as one friend of mine used to say, you’ve got to be very careful not to “stop evolution,” or stop progress.  We’ve got this process that’s documented, that’s it, it’s done, go do it.  And they have a hard time with the idea of continual improvement because everyone is afraid to mess with the process.  How have you gotten around that?

JD: Our favorite question to ask around here is, how do you know?  And we constantly challenge each other, mostly its Kurt and I, the president of the company, sitting and having conversations about ok we’ve worked on this … let’s just say we’ve worked on ceramic tile … that happens to be a project we’re working on this week.  We get to the end of it, we’ve negotiated the contracts, we’ve looked at the take-offs, we’ve looked at the quality and the scopes of work and we say OK.  We’re satisfied we’re at the end of this project.  What are we doing to move on to the next one?  Usually that’s the time to go ahead and stop and say “How do you know?” How do you know you’ve done the best, have you talked to enough people, have you looked at enough competition?  Have you examined whether there’s a better way to do it? And once you’ve gotten through all of that and you feel pretty comfortable you can go ahead and move on to the next thing.  The other thing that we tend to do and it’s rather cyclical in nature is we’ll get to the end of a fiscal year and start over and go back to the beginning and say OK, now we’re fresh we haven’t looked at ceramic tile in a year, so let’s go and look at that again.  Let’s start over and go through the same analysis and determine whether there is a new product out there? And bring suppliers in, bring the manufacturer reps in and bring the contractors in.  Is there a new way of doing it, have we seen anything new introduced into the market?  If we run into somebody at a conference or a trade show and seen something or did we read something in Professional Builder magazine, maybe a new way of doing something, or a unique innovative idea, you’ve got to revisit those things constantly and make sure that you are truly are on the cutting edge without jumping out too far and creating problems for yourself.  We’re a little more conservative in our approach but we do want to observe everything that’s happening out there and make sure that we’re offering the best product, the best service, the best quality that we can on all fronts.

SS: With the approach that you’ve been taking the last few years, are you finding that any of your suppliers and trades are, unsolicited, bringing things to you?  Calling you on the phone, saying “Hey Jim you’ve got to see this” or “I’ve got another idea”.  Has that improved compared to the past years?

JD: Yes, it always depends on the trade partner.  This year my truss company came to me.  You know we are very involved in the Tampa Bay Builders Association and other industry associations.   I met a gentleman two years ago who through the association wanted to do my trusses and he was very low key.  I was happy with the company that I had at the time but he developed the relationship over a period of a year and we wound up giving some commercial work and he did such a great job he wound up winning over 100% of my business.  But it wasn’t until after that, that he had spent some time looking at the product, looking at what we do and came to me and said I think we have an opportunity to go ahead and value engineer all of your trusses systems, your floor joists, and all of that.  I said well, trusses are something that’s real important to me.  We are in Florida and we have something we call wind events down here and they can be devastating.  But I said I wasn’t real keen on him value engineering the product the way I understood the term to be which was simply to go ahead and maybe reduce the species of lumber, maybe reduce the nominal sizes, maybe change the gusset plates, maybe reduce the deflections.  So I said, “if that’s what you’re talking about doing I really don’t want to do that”.  He said “Oh no, no, no, there’s a lot of things we can do to make it easier for the mechanical contractors and the electrical contractors.  Right now the web spacing is real small and they’re having a hard time fitting their materials through so they’re bunching it up.  I was talking to the A/C guy and I think he might be having some quality issues with getting the airflow through the duct work because its getting pinched. We have the ability to open that up.  He said it’ll cost you a little more in stucco and maybe a little bit more in drywall but we can probably do some things to reduce the cost on the trusses and floor joists that will net out for you”.  So we said  go ahead and take a look at it and he spent about 3 months.  He did every single one of our plans, every one of our elevations, and ultimately at the end of the exercise we actually were saving money, the electricians were happier, the heating and air conditioning guys were happier.  We reduced our deflections as opposed to increasing them.  And I believe wound up with a better product.  He was really proud of himself and in his words he felt like he had earned the account.  He had already earned the account by getting the business but he brought more value to him as a trade partner as a result of the exercise and I was very pleased how it went down.  We’re using that as a model in some other areas right now.

SS: And it occurs to me, I go back to the conversation that I had last night with my friend on the West coast, that our regional VP of Purchasing is never going to get that kind of effort, work and cooperation from his truss manufacturer as well as the mechanical trades you described if their only criteria and a slash and burn approach is initial price.

JD: Yes, that’s true.

SS: Well speaking of “slash and burn,” we run into people who say “oh yeah, we’re doing Lean, we’re doing Lean” and what they believe Lean is, is just taking anything they can out of the product.  We often refer to it as “dumbing down” the house.  When you dumb down the house you make it hard to sell.  And when companies get very enthusiastic about Lean, if they aren’t careful and they don’t really understand the true definition of it, that can happen.  How have you avoided that?  Maintaining the type of “extreme quality” in the type of house you build and still Leaning it and taking cost out wherever possible?

JD: I think the very first thing you do is you define who you are as a company and what your product is, I mean we’ve got very strong core values, we use them to drive every decision that we make and if you’ve got a company culture, that company culture starts with those core values of the principal key players.  Your reputation as a company gets developed as that.  What I see with certain builders is they get known for something and then they abandon that in the interest of reducing costs and so the first thing we had to do is make sure that we understood who we are and that we were comfortable in our skin and that we felt that it made good business sense.  If we were to go ahead and because of the current economic situation retreat from who we are as a company, retreat from the quality standards, we may sell some houses during the interim but our base would not forgive us and we would have difficulty returning to who we are when the economic cycle comes back up.    So I can apologize for price once but I’ll have to apologize for quality and service for the rest of the life span of that house and so we just don’t feel comfortable doing that.  There’s ways to decrease costs, there’s ways to go ahead and find savings that have nothing to do with changing your specifications.   And you can drive around to any community, any subdivision and look at the construction going on, even a lay person can, and see the unbelievable waste that goes into a home whether it’s through take-offs that are heavy, and the material that gets thrown into the dumpsters to inefficient means of going about building a home.  Improper staffing that can cause a cycle time on a particular task to take twice as long, which also reduces the cash flow for that contractor.  There are so many different things that have nothing to do with product, but then again, you also have to define where you’re spending your dollars.  We actually increased our specifications on January first of this year to include Florida Green Building Coalition certification and Energy Star certification which caused me to add about $5000-$6000 in sticks and bricks to our homes.  And yet we did not increase the price of our homes and we were able to find every one of those dollars somewhere else in the process whether it was through rebates from the electrical suppliers or through the EPA or other types of incentives or just finding savings in other places that really brought no value to the customer.

SS: That’s a remarkable story and one of the tag lines that we’ve been using recently, is Lean is Green, and it’s remarkable how many things that, and you’ve just given some great examples, that people can do under the spirit of Lean that actually translate into green.  That could be a great topic for another conversation sometime.  May I ask you a couple of questions here, in your organization have you actually gone into any of the training on any of the specific tools that are used in Lean or the Six Sigma type training? Have you gone as far as implementing those kinds of tools and skills at this point?

JD: As you know I began attending the Professional Builder Benchmark conference about 10 years ago, I think you and I first met back in 1998 or 1999 when I first attended that.  There’s been some incredible features that have come through and not to blow sunshine but I think you’ve done a great job with me, of teaching me along the years and a lot of other people.  You know Serge Ogranovitch and Frank Alexander and even some of my peers like Charlie Scott have just done a great job of mentoring me and teaching me and showing me these things.  I took a long time, I went in the Marine Corps right out of high school at 18 years old and didn’t get to my bachelors degree and my masters degree until later in my career, so formal education is important but I think I’ve put it in balance and I also understand that the people that I’ve got to go teach and mentor and partner with are not going to have the benefit of the training and those kind of things.  So I’ve read all the books, I’ve been through a lot of the training myself but not putting my people through it.  I take that information and boil it down to a language that they can understand and that they can really employ.  Never been through the actual Six Sigma training.  I’ve read a couple of books and some of the national housing quality builders that have been through it, I’ve certainly spoken to them, but what I’ve done is taken bits and pieces of that.  My stepfather has written   ISO 9000 standards in the space industry and so I’ve taken a lot of the knowledge and information that he has for quality control and corrosion control and employed a lot of these methods and processes that so many successful people employed in other industries and tried to figure out how those would apply to the home building industry.  You take that and wrap that up with TQM practices and you’ve really got a good solid approach to it that people understand on a basic level.  You know, what’s in it for them, how does it benefit them and how can it positively benefit the company and our company.  Does that answer your question?

SS: Very well said and I have to say it’s a rare COO that immerses himself to the depth that you have and it’s always kind of scary when you’re doing a presentation and you’ve got a guy like Jim in the room. I puts  a lot of responsibility on you because you know from history that he is going to go back and do these things and implement them. Maybe your average participant listens a little bit, goes back and tries one or two things or tells one of their subordinates  “Hey I heard this thing that sounds pretty good, go do this or take this form”.  But your history Jim is a guy who goes back and if you hear something you like and you think it will work you’re going to figure it out and interpret for your people and go do it and we certainly need a lot more of that in the industry. 

JD: I remember we had, going back a few years you’ll recall this because I think you and I and maybe a dozen other people were the only ones left in the room on a Sunday in New Orleans before Katrina.  We had Ram Charan and Larry Bossidy in to speak about their book, is it “The Art of Execution”

SS: Yes, but with Katria coming, I think it was just called “Execution”

JD: I had a chance to speak with Ram quite extensively, that was profound in that we as executives spend so much time sitting in rooms planning and talking about things and so little time on execution.  That was one of the more beneficial presentations I think because I spent a lot of time with the book afterwards and following up with Ram and some other people about how do you take that, how do you make the time to go ahead and focus on the execution instead of just talking about things all the time.  It’s actually a lot more fun to do the execution side of it.

SS: Well, in looking back over your four years at Southern Crafted here and what you’ve implemented.  What were the results, some examples, a couple maybe qualitative and quantitative, you described some of it to us, but what do can you cite or what are you most proud of that you’ve accomplished?

JD: First and foremost is a return to the culture, the core values.  That was the reason I was brought on board here was to get that core value and culture back in place.  Make sure that the quality that we’re known for, the customer service that we’re known for is intact and able to be replicated on a customer by customer basis, getting the right people in place to be able to deliver on that.  You know Jim Collins talks about that heavily, get the right people first.  You can’t do anything without the right people so we follow top grading constantly.  Big fan of Jack Welch and Dr. Bradford Smart where you look at who are the right people to have and then focus on getting the right people on the bus and constantly evaluate them and upgrade wherever you can, either by increasing the knowledge and skill level of your people or bringing people into the organization that are a higher level.  So people was huge but the results that come in, the practical results that I think the audience is going to be most interested in, is that once you are able to establish costs and have the people and processes in place to replicate that on a house by house basis when you have the continuous improvement culture where you’re looking to improve constantly on quality, margin, profit all of those things.  What you see is incremental increases that make it worthwhile and we certainly have seen that, first in margin we reduced our costs across the board by better negotiations, by the consistency, by getting better labor costs through consistency, by getting better material costs by demonstrating how we pay and having better take-offs so they’re not running their trucks up and down the road. All of these things contribute to the bottom line and so once you get all the costs in place and you increase your sales then you start compounding the impact of those better margins, better profit.

SS: You guys are a private company of course so we respect that privacy, but can you give us a notion whether or not these days you have a bottom line?

JD: Yes, I want to be very careful in what we talk about in margins and profits and we most certainly do have a bottom line and I can tell you that if you were to look at Chuck Shinn’s “Best Practices” we’re right there.  Chuck would be happy with us. The profit margins and the targets that we have are exactly what he recommends.

SS: That puts you in extremely rare company these days. The builders who can get to break even the last few years are awfully happy and I think what you’re telling us is you guys have certainly done better than that and that’s an outcome of the work you’ve done.  For the audience here, what would you tell them, 2 or 3 things, if they want to seriously launch into Lean, to understand it,  to understand the implementation? What are 2 or 3 things they have to do?

JD:  First and foremost they need to find a mentor that can teach them if they don’t inherently know or have not been through formal training themselves.  They are going to have to spend some time going through training, going through a mentorship to learn what this means because to go into this blindly will have deleterious results.  You can really hurt yourself more by just going into a cost cutting mode which I think is the natural way, because that’s the easiest way, that’s the low hanging fruit.  It has to be a cultural thing. You start with your people and your employees first.  It can’t be limited to the job site or the project.  You have to operate Lean in your office. You have to operate Lean in your sales offices.  Everywhere that you do, I mean, this may sound silly but use a porcelain coffee cup instead of Styrofoam cups.  And that’s a little thing but that’s Lean because you can by Styrofoam coffee cups every week or you can by one porcelain coffee cup.  That’s sustainability too, that ties into the green side of it but every single thing that you do has to fall into it. You’ve got to make list after list after list of what can you do better in your company, where’s your overhead going.  But of course your single biggest things are the costs that compound themselves.  So when you’re out there if you’re talking about sticks and bricks that has a compounded effect so you have your biggest impact there but you’ve got to teach people what this looks like.  You’ve got to do the mathematical exercises and not run around preaching but demonstrating.  You’ve got to be the Lean cheerleader first.

SS: What’s the biggest obstacle that they are going to face?

JD: People, people first. This is hard because it’s all the time so if you are able to, if you have one person out there that is against what you are trying to do they’re a cancer.  You need to cut it out because they’ll make it difficult for you to make progress.  Everybody’s got to be moving in the same direction. Everybody’s got to believe the same thing and be on board.

SS: You’ve been at this with Southern Crafted for four years and I know that you were going down this path with the previous builders way before that. But, if you look at your experience for the last four years is there anything you would have done differently if you could go back?

JD:  Yes, made certain people decisions much quicker.  You know you always want everybody to come on board and believe in what you believe in but I think I could have been a little more like Jack Welch and arrived at personnel decisions faster than I had.

SS: Do you ever have a danger of losing someone that might have been good or do you feel like you tended to err mostly on the other side.

JD: Well, I’m particularly proud of one individual that I thought I was going to give up on and I stuck it through and that person really turned around and has become a great asset.  So I mean there’s always the danger that you lose somebody that has the potential.  But it’s a balancing act. You can’t wait too long for the detriment of the organization.  So you use your judgment as best you can and hopefully everybody is going to be on board, but when it becomes evident to you that you don’t,  I mean that’s why you’re an executive.  You make the decisions and you live with them.  Hopefully most of them are good and you realize some of them are not going to be the best decisions.

SS:  No doubt the hardest part of management.  Well, I knew you’d do a great job with this and give us a great picture to start this off.  So wrap up here, tell us what’s next?  Where do you see the company 3, 4, 5 years down the road with the direction you are going?  What do you hope to realize?  How would you, if things go the way you want them to, how would you describe yourselves in a few years down the road?

JD:  We are in a growth mode.  As we come out of this down cycle we hope to grow the company, build more homes. So the challenge that you wind up with is, as you grow a company, you bring more individuals into the organization, you bring more trade partners into the organization, you do more volume.  Your ability to go ahead and continue on the path that you are on at a greater volume becomes a challenge.  There is an optimum level of performance.  There is an optimum level of volume that helps you and then there is a level of volume that gets beyond that where it becomes more difficult to control so your integration of the culture and the philosophy into all employees in the company is a challenge.  Making sure that all new trade partners are properly integrated into the company and understand it. Making sure that you’re able to manage by walking around to see whether what you think is happening is truly happening and having the trust in middle tier people as you’ve introduced them to protect the culture and core values and that philosophy.  So there’s a lot of opportunity throughout this and that’s what my biggest challenge will be.  Right now I’m in a position where I can see it all on a daily basis.  Once you get a certain volume going it’s not possible to that the way you would like to or the level you would like to so there’s a lot of trust involved and there’s a lot more training and mentoring down to your people.  So I am looking forward to that.

SS:  Well, it sounds like you are going to be around with us in the industry for some time to come and we’ll check back with you from time to time.  I hope ten years from now we can look back and say, “Hey, remember when we started that very first Lean Building Forum with you, Jim?” and maybe we’ll still be doing it.  Jim, talking to you is always enlightening; always a pleasure and you’ve given the audience a lot to think about.  For those in the audience who aren’t completely familiar with how we are doing this you will find the complete audio and written transcripts of this interview posted on housingzone.com and then an abbreviated version will appear as an article in Professional Builder magazine.  Jim, again, thanks.

JD:  Scott, you too. It was a pleasure being with you today.  Thank-you.