DISCUSSION PAPER PART 1
Modular. Prefab. Pre-built. Manufactured buildings. Industrialised housing. System built housing. Off-site construction. These, and other terms, are broadly applied in our industry, and often misunderstood. Some people will insist that they each have distinct meanings that should be applied very carefully to specific methods of delivery. Others will insist they are interchangeable, as no universal nomenclature exists.
In any case, there are two general approaches to the production of buildings in a factory setting. In Australia it is fair to say that the overwhelming majority of factory-built buildings adopt an “off-site construction” approach, where the work is taken into a controlled environment
(a large warehouse or factory). This is where traditional trades construct the building with the benefits of a flat factory floor, good access and materials handling, and the absence of weather limitations. The operators also benefit from bulk procurement of materials and efficiencies in labour.
However, because the trades, materials and methods are all traditional, efficiency is constrained. Limits are very quickly reached, regardless of increased volumes and no real improvement can be achieved beyond the initial increase.
Off-site construction ‘factories’ certainly have their place, and are a cost effective way of producing repetitive building forms. With little more than a few bays of pallet racking, some movable workbenches, and a family of 18v power tools, an efficient workflow can be established, trades can go to work, and buildings can be produced. This “pop-up factory” approach can be very effectively deployed in response to a discrete project; to service a particular geography, or to expand and contract factory output in response to market demands. Minimal re-training is required as most work is undertaken by traditional construction trades. However efficient the off-site construction facility is, the natural constraints of a construction based building methodology will remain, and real economies of scale will not be achievable.
To break out from the efficiency constraints of the “construction in a factory” path, a step-change in the approach to the procurement, design and fabrication of the buildings is required up and down the supply chain. This change requires the adoption of a building-as-a-product mentality. Products are manufactured, and manufacturing requires a mindset often at odds with that of construction.
Construction is a project-based endeavor, where each new project has by definition, unique stakeholder groups, site conditions, and building designs. Capable construction professionals excel at tackling problems and developing unique solutions. Competent manufacturing experts excel at process flow, refinement and constant improvement. DfMA is a collective for this product driven, technology enabled manufacturing approach to the production of buildings.
Perhaps the most dramatic iteration of a mass-manufacturing approach to home building is in Japan. The market there is around ten times the Australian market, and due to post WW2 reconstruction efforts, factory-built homes are a broadly accepted subsector of the industry. Sekesui House is perhaps the largest of the manufacturers – typically they ship about 48,000 modules per year to construct over 5,000 large, beautifully made, high-end houses. Sekesui and many of their competitors, like Daiwa (Japan’s largest builder), have invested staggering sums of money into building largely automated production lines. These factories are very similar in nature and scale to traditional automotive moving-belt production lines, capable of running 24/7 with relatively few workers on many sections of the actual line.
The traditional approach to construction delivery looks at the ‘time-cost-quality’ triangle, where there is a ‘zero-sum’ assumption; if the client wishes to increase ‘quality’ then time and/or cost increase. Compress ‘time’ and 'cost' increases, while ‘quality’ may suffer. To complicate matters, there is often a misunderstanding about what ‘quality’ actually is.
In general usage, quality is often assumed to be a 'measure of luxury'. A $500 leather laptop satchel from Prada is said to be better quality that a $50 one from Officeworks. A bathroom clad with hand-polished Carrara marble tiles is said to be better ‘quality’ than one clad with vinyl-faced fibre-board. But what if in the production of the Carrara marble bathroom, the waterproofing was forgotten?
The triangle should perhaps be ‘time-cost-scope’, where scope is a measure of the agreed design, specification or ‘level of luxury’, and ‘quality’ is a measure of the execution against that scope. A Carrara marble bathroom may be ‘luxurious’ (i.e. have a high specification), but will be a fail from a quality assurance perspective if that waterproofing membrane is absent.
Forgetting the waterproofing is perhaps an extreme example, but there is no doubt that the adoption of robust quality-assurance processes and procedures significantly reduce the risk of failure. Bringing the ‘product’, like say a bathroom, into a factory setting helps create an environment where robust quality assurance presides. Modular turns this preferred delivery model into a reality by standardising the scope and allowing quality to be checked more rigorously.
Factory-built offers the possibility of breaking the ‘zero-sum triangle’ - increasing scope (perceived ‘quality’), while also cutting 'time' and 'cost'.
This by definition is an increase in productivity; producing more with less input. In an industry infamous around the world for its stagnant, or even declining productivity, this increase may come as some relief, if not as a surprise. With construction industry productivity levels far behind other sectors, The McKinsey Global Institute (MGI’s) Reinventing construction: A route to higher productivity report, 2017, suggested that if productivity in our industry were to catch up with the rest of the economy, the sector could add additional value estimated at US$1.6 trillion, adding 2% to global GDP – equivalent to about half of the world’s annual infrastructure needs.
The report, and many others of its kind point to regulations, transparency, contracts and risk sharing as areas for improvement. There is also an abundance of expected commentary around the need for upskilling, project execution, design and engineering processes improvement, as well as in procurement and supply chain management.Notably, MGI's 2017 report suggests the key areas for improvement are the use of digital technology, new materials, and advanced automation, and concluded:
KPMG’s Future-ready Index, 2019, which analyses global construction and engineering firms and their levels of innovation, reported that of all the companies interviewed 72% believed that digitisation would increase the construction industries productivity, with BIM, data analytics, project management information systems and mobile platforms featuring as the technologies most heavily adopted by the innovation leaders.
Bathrooms are the most prevalent building element to be modularised, and for very good reason. They are small rooms, with many trades being required. Some trades, like plumbers and electricians, are required at multiple stages in their construction to complete for example, around thirty to forty discrete trade layers. A competent site manager will know these layers intimately and will book the trades to arrive sequentially. However, because each one is critical (the tiler can’t lay the mortar bed until the waterproofer is finished), the on-site schedule for completing the bathroom usually has a day or three of float built in between each trade. Even with this float after each trade, site managers inevitably spend half their working weeks chasing alternative waterproofers, and giving the tiler assurance that they shouldn’t go to a different site that week.
Bringing that bathroom into a factory setting, where it is scheduled for production with dozens of identical bathrooms, starts to erode the need for float between each trade. With dozens of bathrooms backed up, neither the waterproofer nor tiler need to go elsewhere. With two or three waterproofing and tiling teams engaged full time, the likelihood of one trade causing irreparable damage to the schedule is virtually eliminated.
While this approach might half completion of an individual bathroom, real time benefits are provided at a higher level in the overall schedule. Beyond the elimination of unnecessary float, the secret to effective time compression in any program is to identify those tasks that don’t have (or can be tweaked not to have) dependencies on prior tasks. The key is to start every task as soon as possible, run as many tasks as practically feasible in 'parallel' not in in 'series'.
Taking whole chunks of the overall project and running them in parallel can facilitate order-of-magnitude time savings. Fabricating the bathrooms off-site, for instance, while the structure is being erected on site can reduce the overall program by many weeks.
Fabricating the entire building superstructure off-site, while the in-ground works are being undertaken can reduce the program by yet another order-of-magnitude.
There used to be a ‘rule of thumb’ in the construction industry that for any given building project, it would take about one third of the overall program to complete in-ground works, a third to complete the structure and a third to complete the fitout. We know that manufacturing in a factory can dramatically reduce the time to fabricate a building (it only takes 17 hours to assemble a Toyota Corolla!). If the ‘structure’ and ‘fitout’ components are undertaken in the factory, and they realise time savings of only half normal duration, then they would both fit into one of those 'one third' time slots.
Assuming also that the in-factory and on-site works run in parallel, then the overall project duration could be cut to a third of the alternative in-situ build time.
Designing a simpler substructure – in acknowledgment that the superstructure can be light weight and self-supporting (a room module arrives on the back of a truck after all), provides yet more time saving by reducing the in-ground component, and subsequently the overall program to a fraction of an in-situ built alternative.
There is no doubt that as volumes increase, the cost of production decreases - it is one of the ‘trueisms’, demonstrated over and over again since the dawn of the industrial revolution. Fixed costs are amortised over ever-increasing production units. Volume allows greater savings in procurement, greater flexibility in resource allocation and greater efficiency through learning
The following graph is a dramatic demonstration of how the automotive industry has been able to get the build-cost of something so incredibly complex as a family car down to less than one tenth the cost of the pile of ‘bricks and sticks’ we call a family home.
The numbers in the graph are real world. The high-volume methodologies (metal stamping and carbon fibre moulding) are from a presentation by global automotive parts manufacturer, Fagor, at the 2016 'Composites Europe', the 11th European Trade Fair and Forum for Composites, Technology and Applications in Dusseldorf.
The fibreglass and plastics costs are based on informal quotes from Sydney based manufacturers, while the ‘hand-made’ costs are based on skilled trade labour rates in Sydney, 2020.While house-building may not ever reach the volumes suggested here for the electric vehicle at 90,000 units per year, the inference is clear – there are dramatic savings to be realised through volume manufacture.
It is important to understand that this pricing is for an individual part, in this case the roof panel, not for the entire car. Applying the same logic to the world of construction, where even 1,000 homes per year would be considered one of the largest building operations in the country, it can be difficult at face value to predict how far down the J-curve that order-of-magnitude savings might be.
By systemising and modularising component parts of a building, the volume of individual parts to be manufactured increases dramatically, thus allowing significant savings. For instance, if wall panels are standardised (either by restricting panel size to a ‘catalogue’ of parts, or by standardising critical connection details), then the 1,000 unit per year builder might actually produce 30,000 or 40,000 wall panels, all with standardised frames (with customised finishes), pushing the volume / cost savings a long way down the cost curve.
Further, if in the design and assembly of the individual wall panel, standardised items like connecting brackets are used, then those 30,000 wall panels might consume 300,000 standard brackets, and perhaps three million standard screw fixings. Multiply these numbers by a factor of X if there is an industry adoption of the system. This further opens up the opportunity for supply-chain innovation and investment, in fabricating vast quantities of standard brackets, or machining screws and fixings.
The key to realising those automotive industry levels of savings is through the systemisation of the building and modularisation of elements and parts.
In the image below, a theoretical car is shown where the very high cost of development parts (engines, gearboxes etc) are universal, and the simple to customise parts (body panels; interiors etc) can be easily changed. In a group such as VW-Audi for instance, costly parts like engines, and unseen parts like door hinges and wiperblades, will be deployed, not only in VW Polos, Golfs, Passats, utes, vans etc, but will appear across entire ranges in other brands like Skoda and Audi, and at the high end across Porsche, Bentley, and Lamborghini. They all look completely different but carry many of the same parts.
Volkswagen’s MQB – ‘Modular Transverse’ – multi-brand product platform
Looking at the automotive cost reduction J-curve above, it is easier to see how an engine would be prohibitively expensive if dedicated solely to say a VW Golf GTi. When that same engine is used across a broad base of multiple car types, from multiple brands — with VW/Audi group exceeding 10million units per year!— the volumes start to drop the costs down to the flat section of the J-curve.
One of the other subtle inferences from the automotive J-curve, is that if a business is wedded to a technology, it won’t realise the full benefits. Note in the auto-part J-curve that every step change in volume demands a completely new production method; moving from hand-made aluminium panels; to moulded fibreglass; to steel-stamping, all the way through to high pressure carbon fibre injection. This may largely explain why the Sekesui’s of this world have not been able to realise the full potential of volume production (i.e. even building 5,000 units per year, their houses are still extremely expensive!). They are stuck with the same product and process they started with in 1982. Partly because the finished product is of outstanding quality (reducing incentive) and partly because of the enormous capital investment in the production lines, it has proven exceptionally difficult for the likes of Sekesui and Daiwa to change anything about their product for almost four decades.
To succeed, any modular manufacturer needs to develop an appetite for change.
Being locked into handmade parts (or the construction-in-a-shed methodology of most prefab operators), permanently squanders a business model's scalability and profit opportunity.
Equally, deciding at the outset to adopt the equivalent of the Carbon Fibre Injection methodology suggested by Fagor in the J-curve , will ensure any modular business will fail, as it will go broke trying to reach the volumes demanded by the huge capital investment.
Technologies are constantly changing and evolving.New materials and methodologies are being developed all the time. The business will hopefully grow steadily. All of this conspiring to ensure that the product / method / system that works for today will almost certainly not be optimum for tomorrow. In order to survive and thrive, modular manufacturers, just like businesses more broadly, will need to be agile, nimble, constantly challenging, learning, changing, adopting, adapting. It needs to be in the DNA.
This constant state of flux is anathema to the conservative nature of the construction industry. There will be resistance. There will be conflict. As management guru Alvin Toffler said about the “illiterate of the 21st century” in Future Shock (1970), the successful modular manufacturer of the future will need to constantly “learn, un-learn and re-learn”. It will need to constantly challenge its own thinking, seek out new ideas and ways of doing things, and perhaps most importantly, collaborate with a broad and everchanging network of likeminded individuals and organisations. Linkages with academia and partners up and down the supply chain will be critical.
So where is the natural limit of cost efficiency in the context of prefabricated building? How far down the cost J-curve is it possible to aim?
The benefit of overseeing the costs on hundreds of residential projects over the years, mapping volume/price points for the construction and prefab industries, demonstrates a remarkably similar ‘J-curve’ trajectory to automotive, which may allow a bit of 'what if' crystal balling in the construction industry version of the cost J-curve below.The high end, custom designed and master built homes showing on the far left of the curve are about as cost effective as the hand-beaten aluminum roof, or the hand-laid GRP panels, in the automotive chart.
High end modular, in Australia, demonstrates how a factory made product, similar in quality to the high quality master built home, can be delivered for cost savings of perhaps 25% against comparable in-situ build, because of the efficiency in the factory and the somewhat repetitive nature of the prefab product on offer.
In Japan, high end modular products are comparable in quality to their Australian peers, but with savings in the order of 25% - 30% by comparison, because they have the volumes to drive the prices down.
High end 'project homes' and their 'low end' siblings again show cost savings in the order of 25% to 30% for each step change. The savings here are partly driven by the volumes being delivered and partly through the demonstrable reduction in the quality of the product, compared to those further up the curve. Lower end prefab manufacturers are comparable in cost to lower end project home products. While they both may have directly comparable quality, the smaller prefab operators achieve these costs with volumes <100 units per year, while the project home builders may require >1,000 units per year to get to this point. These are general statements for sure, and dependent on the specific quality intent of each builder; where the building sites are, and how easy to access, where the factories are, and so on, and there will be plenty of exceptions / outliers, but on average across the mainstream Australian market, identifying these players at that point on the curve will be generally reflective.
Further down the curve, Clayton Homes in the USA, as the umbrella group for Berkshire Hathaway’s conglomerate of brands, assembled in the immediate wake of the 2008 GFC, is a clear demonstration of how huge volumes can bring the price point down dramatically. Manufacturing in the order of 50,000 homes a year, in dozens of factories across the mainland, Clayton rolls out about 25 to 35 completed homes every week from each factory. They sell ex-factory for US$500 per square metre. With assumed transport and installation costs, this translates to perhaps AUD$1,250, turn-key.
While these prices are encouragingly affordable, it is worth noting that the quality of these homes is discouragingly low. They are robust for sure, with a basic steel chassis underneath, with timber stud walls and insulation adequate for the climate zone intended. But they are in every way basic. Fixtures and finishes would be deemed unacceptable in the context of the average Australian home. They are designed to a specific manufactured home park building code, with a very specific, albeit large, demographic in mind.
It is also worth noting that there is little evidence of manufacturing in the Clayton Homes plant. Production is reliant on large numbers of low wage workers, carrying out traditional construction work, within the factory environment. While they all benefit from Berkshire Hathaway’s formidable purchasing power, the factories are not huge. Each plant produces perhaps 1,000 to 2,000 homes per year, suggesting that it may not be necessary to produce 50,000 per year to realise most of the volume based efficiencies.
Where then could a systemised, modular product, with high levels of production engineering and modest levels of capital investment get to?
While it may be crystal balling, those “What if?” price points shown at the lower, flatter end of the prefab J-curve should at least be achievable in theory. It may not be aspirational to populate the world with ever more Clayton Homes type product, but perhaps the most exciting spot on that curve is the “Sekesui House-level volume, but with constant innovation”. If Sekesui, or
a newer entrant to the market, like a reasonably well funded Australian player, were to be free of the crushing constraints that a billion dollar factory placed on its ability to innovate, and to bring on new materials and methods with each step change in volume, then what would that volume-price point look like?
The actual automotive J-curve, and the extrapolated prefab J-curve point to where an innovative, agile modular manufacturer could provide high volume, top-shelf product – comparable in quality to the “High end, architect designed custom home” - for a turn-key price in the order of $1,500 per square metre. Equally, the J-curves also suggest that a product to rival traditional entry-level ‘project homes’, could be delivered for a turn-key cost of $800 per square metre, if manufactured in sufficient volume.
There will be loud arguments to suggest however, that although the factory-made house may be increasingly cost effective, things will get bogged down when it comes to the site works and installation. There will always be the messy aspect of building sites. But does it really need to be that way? Do we really need to accept that leftover waste and debris is how building sites will always present?
In his 2017 paper, A Car is not a House (Yet), Prof Mathew Aitchison very clearly sets out the many reasons why the modular or off-site construction industry has been unable to realise the economies of scale that the very comparable automotive industry has achieved.
And while in the current industry context, few of these road blocks are looking like shifting, Prof. Aitchison does hold up the light to the possibilities for positive change. Understanding the specifics of prefab compared to automotive (and other) industries is key, he argues. The need to finally attach the building product to another site every time is perhaps the key difference.
If understanding the differences is the central question, then technology is the answer. In the same way that technological change is building momentum on the design software and factory production side of the prefab business, so too is tech about generate change on site.
How long before we see a Bobcat driver wearing her Augmented Reality glasses, “seeing” the dimensioned and annotated footing layout overlaid on the dirt, and with the beep-beep of a three axis laser guide, driving screw piers to the exact depth, in the exact spot, ready to accept the house modules from the factory? All of these products and technologies are widely available, on the shelf, today.
How long after that might we expect to see a driverless Bobcat doing the same thing? If it’s good enough for Tesla… The question of what happens to those workers displaced by the driverless Bobcat is beyond the consideration of this article. Likewise, the question of re-skilling the industry. This might all sound far away, but we may need to ask these questions sooner than later.
If the task of the new site manager is to use her tablet and AR goggles to set the X and Y axes and height datum for the site, then upload a few files to the Bobcat to scrape it, excavate the services trenches, and screw in the piers, then who is she? A land surveyor? A civil engineer? An architect? A carpenter/builder? A carpenter/builder? Or a “Minecraft” and “Fortnite” graduate?
She will certainly be a ‘digital native’, and probably won’t baulk at the apparent ‘cross-discipline’ nature of her role, but she will need training in all of those things to be really effective. The ability of our vocational and tertiary institutions to recognise these looming industry needs, or perhaps drive them, will have a profound impact on industry's ability to leverage new technologies.
We know that manufacturing in a factory can dramatically reduce the time to fabricate a building. As noted previously it only takes 17 hours to assemble a Golf or a Corolla. And we know that the real time savings are in having the in-factory and on-site works run in parallel, but conventional wisdom seems to accept that the on-site component will not change.
But what happens to the “turn key” price-point when our AR-wearing Bobcat driver cuts the on-site prep work from several weeks to a few days? As with the automotive J-curve, a rethink on materials and methods will be required for each step-change in volume, and for each new wave of technology. But is it really that big a leap of faith to switch from a slab-on-ground, to steel piers on pad footings, to screw piers, to AR guided screws? This is in no way an attempt to prescribe screw-piers as the ideal technology, rather it is an attempt to demonstrate that an eyes-wide-open approach to technology, products, methods and materials is required. To pick on these piers further, it’s not like piers are something new – most homes in Australia were built on stumps with good old bearers and joists up to not very long ago. If the substructure design parameters change to reflect the modular product’s structural integrity, and the AR guided, Bobcat driven screw piers can really cut site prep time by 80%, can we expect to see order-of-magnitude cost reductions in the rest of the on-site portion of the works too?
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