ERP for the Home Building Industry A white paper

Godfried Augenbroe College of Architecture, Georgia Institute of Technology Summer 2006

This is the first of two white papers that review the current use and future potential of ERP systems in the home building industry. The companion white paper, titled “ERP for supply chain management in the home building sector” focuses on the supply and value chain in residential construction.

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THE ECONOMICS OF THE RESIDENTIAL CONSTRUCTION MARKET IN THE US Over the last decade, the economic and financial market environment has been good for the construction sector as a whole and especially for the housing sector. Mainly due to record low mortgage rates, the interest-sensitive housing sector has remained the hottest part of the U.S. economy. Low interest levels, combined with creative financing options have resulted in home affordability for US families at levels seen last in the early 90s. Record levels of both new and existing home sales and forecasted housing starts of more than 2 million units in 2005 further exemplifies this. The numbers for 2005 regarding house sales, new starts and construction activity overall, surpassed the 2004 single-family records (source: www.housingeconomics.com). NAHB’s housing market index edged up to 70 in the spring of 2005. This was near its all time high where it had been steady for more than a year. Furthermore, the index of applications for mortgages to buy homes (source: Mortgage Bankers Association series) moved up to a record level by late spring 2005. Sales of new single-family homes jumped an unexpected 13.0% to a record seasonally adjusted annual rate of 1.424 million units in October 2005 , the U.S. Commerce Department reported, up 9% from a year earlier. NAHB’s multifamily (condos and apartment complexes) and remodeling market indexes stayed strong as well all through 2005. Although patterns of construction spending throughout 2005 have shown great strength in all areas (source: www.nahb.com) some slowdown was inevitably towards the end of 2005. In the first half of 2006 a moderate decline has occurred and it is generally expected that the rest of 2006 could see a continuation of the slowdown. Most market analysts have become cautious as house price increases in hot local markets across the US fuel widespread ‘bubble’ concerns. Indeed, the median price of singlefamily homes was up by 15.1% on a year-over-year basis, and the median price for condos/co-ops was up even more, 18.4%. However, most analysts expected that when the bubble bursts, it will only burst in the local markets and will only lead to a slow and moderate sale price adjustment with little or no negative effects on the need for new residential construction overall. Before his departure Chairman Alan Greenspan acknowledged that house price behavior exhibits an “unsustainable underlying pattern”. He remained skeptical about the possibility of a national house price bubble, but said there were signs of “lots of little bubbles” in particular markets. For instance, some experts expect the condo market to react sharply downward over the next couple of years, especially in markets where large volumes are under construction and most recent buys have been by investors. The market for single family construction continues to be strong overall. The latest signs (Summer 2006) indicate a slowdown in the growth, mainly due to rising interest rates but no sharp drops have occurred. An estimated 1,360,000 new homes were sold in 2005. As sold homes lag the start of new housing development, a better indicator for current economic activity is housing starts. The following table shows increase of the total number of units being started in recent years.

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Year 2005 2004 2003 2002 2001 2000 1999 1998 1997 1996 1995

SingleMultifamily Family 2-4 units 1,714000 41,000 1,610,500 42,300 1,499,000 33,500 1,358,600 38,500 1,272,300 36,600 1,230,900 38,700 1,302,500 31,900 1,271,400 42,600 1,133,600 44,500 1,161,000 45,300 1,076,300 33,800

Multifamily 5 or more units 310,000 303,000 315,200 307,900 292,800 299,100 306,600 302,900 295,800 270,800 244,100

Total 2,065,000 1,955,800 1,847,700 1,705,000 1,602,700 1,588,700 1,641,200 1,617,000 1,474,000 1,467,900 1,354,200

Annual Housing Starts (1995-2005) Source: US census Bureau, published on www.nahb.org

The home building industry sector With the strong economic tail wind, it is not surprising that the residential construction sector has been doing extremely well and revenue streams and profit margins have been at record levels. With sales being as strong as they are, investment risks have been low creating a benign environment for the industry. With all inflation and demographic forecasts still pointing towards a continued strong demand for new housing, the only clouds on the horizon seem to be the rising house investment speculation and land inflation. Builders are forced to hedge against the latter by acquiring 7-10 years of land stock in advance for future growth. This requires large investments and a strong forward looking business model. To raise cash for large growth driven investments many builders have gone public. Indeed, the share of public builders has gone from less than 10% some 20 years ago to 30% now, and is expected to move towards 40%. In terms of volume, consolidation has set in and strong growth in absolute numbers is not to be expected, especially east of the Mississippi. The number of yearly building permits seems to have hit a glass ceiling in the eastern part of the US. This increases the pressure on price and higher profits per unit, and forces home builders to improve efficiencies to improve the bottom line of their business. Some important trends have occurred during the expansion over the last decade. Although most of the larger (public) builders are geographically distributed, they are still heavily concentrated in only a small number of local markets. This still makes them vulnerable to certain local cool downs, which are bound to occur from time to time. Better coverage of diverse geographic areas is one of the leading drivers towards risk mitigated growth of the major companies and most of this growth has to come from acquisitions. This forces companies to take a hard look at their business models and find the optimal ways to expand the business, diversify and cut costs at the same time. On the

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negative side of this is the realization that the talent pool of managers that are needed to sustain this growth is limited. As a result, mergers among the bigger players become inevitable in a continuing growth and consolidation scenario. Many builders are looking for diversification, not only in geographically diverse markets but also in products. They realize that the single family residence market is not enough to sustain growth. They are looking to diversify into urban and inter-urban construction, urban infill, and high rise apartments. At the same time a continuing shift in demographics is rippling through American society, requiring builders to put more emphasis on homes for the elderly with different forms of remote care and a greater supply of starter homes for minority (especially Latino) communities. These are all signs that will favor companies that have a strong business vision and are able to execute this vision in a dynamic and adaptable business model supported by adequate operational systems. The following table shows the twenty biggest players in residential construction and their total yearly revenue, based on consolidated 2005 data. What is significant is to note that in spite of the ongoing consolidation at the top, the construction industry is traditionally driven by the family owned small construction firm of 20-50 employees. These “Mom&Pop shops” are a crucially important engine of the economics of the construction sector as a whole. They provide local diversity and competition to the big players. Even the larger firms in the home building industry are still relatively small (i.e. medium size companies with fewer than 5000 employees) compared to large size global companies with more than 100.000 workers. The reason for this is that large scale (multinational) consolidation has not taken place as yet in this industry, and is not bound to happen soon.

Rank (according to closings)

Builder

1 2 3 4 5 6 7

D. R. Horton Pulte Homes Lennar Corp Centex Corp KB Home Beazer Homes Hovnanian Enterprises The Ryland Group MDC holdings NVR Standard Pacific Corp Technical Olympic USA Meritage Homes Corp Toll Brothers

8 9 10 11 12 13 14

House/Unit Closings In 2005

ERP for the Home Building Industry © Georgia Institute of Technology; Summer 2006

Revenues (In millions US$) In 2005

51383 45630 42359 37022 31009 18401

14246 14694 13867 14673 9442 5189

17783 16673 15307 13787 11694 9435

5879 4818 4880 5262 4226 3053

9406 8769

3001 5793

4

Shea Homes Mercedes Homes Weyerhausen RE Habitat for Hum. Int. Morrison Homes David Weekley Homes TOTAL

15 16 17 18 19 20

6901 5714 5647 4993 4921 4612 361446

3236 1550 2915 198 1580 1272 119774

2005 Residential closings and revenues of the 20 largest home builders Source: NAHB-Builder Online (www.builderonline.com); Closings are the sum of onefamily, condo and multi apartment developments.

The table shows that the top 20 homebuilders represent a total of 361446 home closings. This represents 26 % of the total US market, with 1,360,000 new home sales in 2005. In 2004 the share of the tope 20 builders was 23 %. The increase of 3% in one year is further proof of a shift of market share to the larger companies. The following graph shows the relative distribution of revenue and closings among the top 400 home builders.

80

Relative Percentage of total revenue 70

Realtive Percentage of total closing 60

50

40

30

20

10

0 0-50

51-100

101-150

151-200

201-250

251-300

301-350

351-400

Relative share of total revenues and closings among top 400 home builders Source: Reed GIANTS 2005 overview.

If we show the same date relative to all home builders we see the following distribution. Note that the top 400 home builders combined only represent slight more than 50% of the total production. This underlines the relevance of the small home builder in spite of the consolidation at the top.

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50

Others

100

150 200 400

350300 250

Share of top 400 home builders of total market Source: Reed GIANTS 2005 overview.

An important sub-sector of residential constructed is manufactured housing. Off-site production is sometimes seen as the key to productivity improvements. After all, bringing the factory to the building site where one has to operate within the constraints posed by urban conditions, local ordinances, and the weather seems to be counter-intuitive. Off site manufacturing is an obvious solution. However, manufactured housing comes with its own set of problems. Manufacturing plants require a large investment with a long lead time that can stifle the agility of innovation. To be viable, off site production requires an agile business model with dynamic shop floor control and advanced material handling because of the exploding number of SKU’s in storage. Moreover, the developers of HUD-code homes in factories have not been able to stay competitive in a market with historically low interest rates that trumped the conventional mortgages of HUD lenders. To stay competitive, the sector has to cut costs, concentrate on vertical integration with their suppliers and form alliances with lending services that can compete with conventional mortgage lenders. The manufactured housing sector has not been able to cope well with these challenges (improving the production hour ratio in the plants has been a major issue) and as a result the sector has suffered a significant downturn, and was basically cut in half in terms of volume over the last 10 years. According to analysts, the leading companies in the space are making a come back based on redesigned business models, lean production methodologies and good alignment with investments in IT systems. One example for this is Cavalier Homes. Cavalier improved performance and cost structure dramatically by leveraging the benefits of an ERP system to succeed in the recent manufactured housing downturn1

1

http://www.sapbuilding.com/SAP/resources/CavalierHomesSuccessStory.pdf

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One way to become more successful is the formation of networks in which the larger builders become supply nodes to the smaller builders, transforming to modular factories in vertically integrated supply chains. This “hybridization” of home construction (a mix of off and onsite production could be one of the most significant developments of this decade). Targeted investment in systems that manage material flows through managed supply chains will help companies make this shift. Some companies have already made that shift and have dramatically improved the cost and performance structure by leveraging new IT systems. Details are discussed in the companion white paper on supply chain management. The residential sector is an important contributor to the construction sector as a whole as the following graph shows. Note that many construction segments contribute to the residential market in indirect ways so the actual share is in fact bigger than the reported share. In the US, as in most industrialized countries the construction sector hovers around 11-13 % of GDP and constitutes the biggest industrial sector measured as percentage of GDP. The US is a remarkable exception to this rule as the construction industry takes only second place, after health care (source: www.census.gov).

Census data for 2005 Residential Nonresidential Lodging Office Commercial Health care Educational Religious Public safety Amusement and recreation Transportation Communication Power Highway and street Sewage and waste disposal Water supply Conservation and development Manufacturing Total Construction

Million of US$ 674,097 520,395 14,464 49,780 79,376 37,431 82,441 7,603 10,400 19,697 28,212 12,557 39,584 67,980 18,894 11,466 5,384 35,127 1,194,492

Total Construction Value put in place in 2005 Source: US census bureau

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It is noteworthy that the residential market constitutes slightly more than half of all yearly economic construction value put in place. The larger part of this is spent on remodeling, upgrades and maintenance of the existing housing stock. It is noteworthy that 95% of residential construction is privately financed, whereas 50% of non-residential is publicly financed and therefore depending on government initiated spending.

INVESTMENTS IN CONSTRUCTION IT The construction sector as a whole is segmented in residential and non-residential construction. The latter is sometimes referred to as “commercial construction” or “capital projects”. In this white paper we will refer to the construction sector as including all types of construction. As the table above shows, a set of major sub sectors of economic construction activity can be distinguished. In addition to this, it should be pointed out that a construction project typically brings together a diverse mix of specialty trades, i.e. design, engineering and general and subcontractors. The general contractor subcontracts part of the work to an array of specialized sub contractors. Residential construction is no exception to this, albeit that the larger home builder supplies most of the special services such as design and customization in-house and typically uses a fixed set of sub contractors to outsource the onsite work.. Occasional surveys of IT investments in the construction sector convey a better understanding of the special needs of the homebuilding sector. The construction sector is traditionally viewed as a crafts based industry that is lagging behind in information technology investments compared to other (mostly manufacturing) sectors. This is however not true across the board. Some construction companies have bet on large IT investments to gain a market advantage. As a result there is a wide spread between individual companies, even within similar segments of the industry. Detailed IT investment studies can be bought from market data analysis firms such as Gartner (www.gartner.com) and IDC (www.idc.com). A 2003 article in ConstrucTech (www.constructech.com) discussed the outcomes of a national construction technology survey. It revealed a mix of investment decisions by different firms but also confirmed one overriding conclusion: construction firms have been accelerating the adoption of technology over the last 5 years. In fact, almost 60% of the respondents describe their attitude toward technology as aggressive or very aggressive. The interest in new and emerging technologies is significant; about 47% were experimenting with handheld devices to enhance communication in the field while 38% used extranets/intranets and some form of web enabled collaboration. And these numbers have most likely grown substantially since 2003 as most companies indicated their intent to adopt these technologies. For instance, corporate Internet access is universally seen as a high priority. According to the mentioned survey, among the traditional IT applications the highest priority is given to project management software, closely followed by estimating/bidding, accounting, job costing and scheduling software. Technologies that were not seen as

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relevant were those based on application service provider (ASP) models, CRM, eprocurement and audio-video conferencing. The 2003 survey showed that the 150 technology leaders spent 0.47% of their 2002 revenues on technology. A breakdown is given in the following table. % of companies 50 8 11 6 10 15

% of 2002 revenue spent on technology 0-1 1-2 2-3 3-4 4-10 >10

2003 survey on technology spending in construction industry Source: 2003 technology survey, www.ConstrucTech.com

The breakdown is relevant for construction firms in general but less so for the home building sector. The explanation is that there are systemic differences between the residential and non residential construction sector. These differences show up in the IT investment landscape. Typical non residential construction projects (capital projects) are large, one-of-a-kind projects with firms that form volatile partnerships in project specific contractual relationships brought together through some form of tendering. Each partner in the consortium has only limited visibility of and control over the process. Each partner deploys systems that are specific to its role, be it in the design programming, design development, specification and construction or operation and use. In large projects it is normal that 10 or more A/E (Architecture/Engineering) partners are involved in the design and engineering phase and that a GC (general contractor) with tens of subcontractors is hired for the construction phase. If one analyzes the project specifics dominated the structure of construction business, one arrives at the conclusion that the comparison between the business of manufacturing and the business of construction diverges on several counts, the main one being that construction predominantly behaves as a service industry rather than a manufacturing industry. IT systems can only be successful in this market if they recognize and support this distinction. It should also be emphasized that the general contractors have been traditionally slow in the adoption of technology. They are obviously very centric to the whole process and therefore have to deal with different and sometimes conflicting needs posed on them by the owner, A/E firms and sub contractors. This is where the home building sector has a significant advantage in that these different forces can all be aligned in one business model and adoption and migration of new technology can be accomplished much faster and through central management. Each project partner deploys its disciplinary IT systems at various stages of the project and relies heavily on the communication of plans, drawings, specifications, estimates, change orders, schedules, cost statements, punch lists, etc between partners and their respective software systems. This explains the increasing need for interoperability of systems and team collaboration. Both are indeed regarded as the two technology needs

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that have increased most over the last decade. A recent interoperability initiative by leading branch industries in the capital project sector supports this (www.fiatech.org). Collaboration tools play their role in the interoperability puzzle but also have their own communication and coordination agenda, mainly aimed at effective project management. In the post bubble era after 2000 only a handful companies survived offering web hosted collaboration and project management services. An overview of companies is yearly updated in a survey (www.constructech.com) whereas up-to-date reviews of collaboration and interoperability providers in the construction industry can be found on sites like Collaborative Technologies (www.collaborate.com). But we also see ERP providers starting to offer more collaborative solutions for inter-company processes. IT systems installed in non residential construction companies The following figure identifies the 3 different types of IT systems typically encountered in the construction enterprise.

Strategy development Strategies, policies R&D needs Market investigation Business objectives Partner qualification, compliance

External resources Internal resources

Human resources Financing Equipment Inventory Process/data interface with A/E partners Administration Supporting services Delivery methods (D/B)

Strategic systems

Tact Syst.

A construction enterprise

Tact Syst.

Project systems

Workforce for hire Services to procure Capital to lend Partners to alliance Equipment to rent/buy Materials to procure New New Market demand

Operational Project Management Project control, WFM RFI/CO management People management Material flow control Resource allocation Documentation

Overview of major business functions and systems of a construction enterprise

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The strategic systems help companies to develop business goals, moving into new markets, develop new alliances or subcontractor networks etc. Tactical IT systems are deployed to manage the internal and external business functions and enterprise resources. Operational systems support the day to day operation. The operational systems are predominantly project centric. Typical examples where strategic systems could be used: - market forecasting and acquisition decisions - technology and other investment decisions - project portfolio management Typical examples where tactical systems could be used: - management of internal resources - program and knowledge management - administrative financial and reporting functions - prospecting and community building - estimating/bidding - in and outsourcing decisions - human capital management - delivery method decisions; this is an increasingly important area as the new forms of tendering and project delivery methods (e.g. Design-Build) are regarded as a major tool to fast track projects, avoid adversary partnering contracts, hence litigation avoidance and cost reduction Typical functions offered by operational systems: - project management - scheduling and job costing - site control and reporting - expediting and materials management - quality control

Historically, IT systems have been developed as niche applications, targeting a specific function. A handful of “champions” have developed in each specialized market. Examples of some of the niche market leaders are: AutoDesk, Bentley, Meridian, Primavera, Timberline, and others. As the need for integration grows, more vendors are combining functionalities behind a common interface. The advent of Internet connected team members through web hosted project collaboration tools has sped up the integrated development. Some major systems with a growing footprint in the system landscape have emerged. Some of the market players are Buzzsaw, ConstructWare, Sitescape, Citadon, e-Builder, Meridian. Aside from the Internet, a fast and furious revolution has occurred through the adoption of mobile technology. It is hard to find another industry where the connectivity between field workers and home office through voice and rich text is so vital. Not surprisingly this has been the area where many construction companies have concentrated their technology investments. It also means that systems without some level of support for the mobile worker will have no promising future in the industry.

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With the exception of the traditional accounting and human resource applications, most of the newer systems are crowding in the operational, project centric systems space. Very few systems have entered the market in the tactical or strategic layer and most companies rely on home grown methods and procedures. The lack of integration across the different “corners” of the construction enterprise will at some point become the greatest hindrance to growth and agility of companies. The synchronization between project site execution and back-office support and control is dilemma major obstacle that is hard to overcome by extending current niche solutions. Across the board enterprise resource planning (ERP) systems are lining up to become the first movers that offer fully integrated solutions, but it remains to be seen whether their selling proposition is convincing enough for a large segment of the construction industry, i.e. other than the big contracting and large A/E firms. In the next section we will be looking at the housing industry and decide that compelling arguments to adopt ERP are to be found in that sector. Although the adoption of ERP in commercial and residential construction happen for different reasons and have different dynamics, success stories from either sector could easily spill over into the total construction sector at large and foster broad adoption. In the meantime one of the biggest worries of construction companies is to keep up with the increasing demands on managing large volumes of complex project data. The incentives for IT investments have been the need for better and faster information processing, especially in the areas of collaboration with A/E partners and project management. It is well recognized that RFI (Requests for Information) and CO (Change Order) processing need to be vastly improved. In addition a recent study by NIST estimated that the costs of inadequate interoperability (mostly related to avoidable costs of inadequate paper information transfer) in construction in the U.S. capital facilities industry to be $15.8 billion per year (source: www.bfrl.nist.gov/oae/oae.html). Material procurement is another area where analysts see the potential for major productivity improvements. Most if this potential has not been realized because of cross organizational boundaries and incompatible systems that create speed bumps in data integration. Studies have shown that errors in procurement, long lead times, and onsite mismanagement of materials lead to avoidable costs which can amount to 30 % of the budget. On site construction scheduling, the Achilles heel of construction projects is so under developed that up to 60% of the average job site workday may be wasted on idle time (source: Construction management group, Purdue University). The construction industry is not only betting on mobile technology, but is also beginning to embrace bar coding and RFID. This technology is entering the construction site for efficient material and tool management. Empowering the field workers and onsite managers with handheld online devices for dynamic operations and self organization in efficient dynamic sub teams is another area where large efficiency improvements can be accomplished (Source: Building Technology Group, College of Architecture, Georgia Tech) Until now, most IT systems in this space are design, engineering and construction oriented. They are predominantly “project facing”. The “business facing” tools are delivered through other, separate channels. A combination of the two is rare, and integration between the business operations (often viewed as a legacy commodity

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process) and project based operations is increasingly becoming a bottle neck for growth. Future systems will have to cover both sides of the business, i.e. both business operations and project facing processes. This is where the leading ERP systems such as SAP have the strongest appeal on businesses that want to grow and become more efficient. Some up and coming IT systems specifically target corporate owners. This class of stakeholders can be viewed as the “forgotten party” in the overall picture. Large corporate owners need and want to play a more active role in the procurement and management of their facilities. They want to maintain the close links between corporate information and business intelligence and the way that projects for new construction are initiated and managed. Managing multiple projects is referred to as program management and some vendors provide specialized tools in this area. This is another area where ERP systems hold strong promises. SAP for instance offers a solution for corporate real estate and facility management, integrated with the company’s asset management as well as a program/portfolio management solution. Component manufacturers (building part suppliers) form a special sub-sector in the landscape of the construction industry. They come closest to “traditional” manufacturing sectors but issues of configurability, made to specification, handling on site, aggregate costing, etc need a type of special project context support that distinguishes them from mass manufacturing processes. The important role of product reps throughout the industry reflects this. The need for vertical market integration through supply chain management is rapidly increasing but the demands on flexibility and configurability are high. This is another market opportunity for the ERP systems to establish themselves in the construction industry at large. The promises that these systems hold for interorganizational integration of supply chains are very high and it is only a question of time before they will be realized. Conclusion: connecting many project partners, integration of their disparate information formats and alignment of project and business facing IT systems are the bottle necks in becoming more efficient throughout the construction industry.

IT investments by home builders The residential market is not a homogeneous market. Its major component is the typical home builders segment (one family residence), making up about 80% of the economic activity in the residential segment. The remaining 20% is occupied by apartment and condo builders. This segment is sandwiched between the construction segment and the home building segment, and they consequently face issues and challenges from both sides. Home builders do not face many of the uncertainties and integration challenges discussed in the previous section. Contrary to the open tendered one-of-a-kind construction project, they are the sole owner of the process, and although they may work with a variety of branch subcontractors and a vast network of (independent or affiliated) suppliers, these relationships are long-lived and based on stable business agreements. The home building business processes are less dominated by the projects, and have a stronger emphasis in on site production processes. The opportunities for business planning and independent

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growth are bigger as the unit of growth is not the “project” but regional development and diversity of residential construction types. Business decisions reflect the volume aspect of the residential market and the needs of companies to hedge against slowing activities in certain overbuilt areas or economic and demographic shifts that affect a particular type of home buyer. The business processes of home building are complex. This is best understood when the crucial process elements and their relationships are inspected: - land acquisition, economic forecasting - planning, permitting, costing, site preparation - marketing, design and buyer option management - customer relationship and sales management - financial services and buyer information services - estimating and accounting - construction scheduling and updating - supplier relationships and supply chain management - cost management, purchase ordering - construction project management, supply chain management, billing - inspection and quality management - after delivery service - best practices learning The list should be understood in terms of many parallel projects the information and process of which have to be aggregated at different levels, for different project and business management purposes and at different user determined granularities. Home builders require very tight integration between all IT systems and project information in order to fulfill these needs. Only technology vendors that understand the specific nature of the industry and the detailed information integration needs can be successful in this space. Although scheduling is regarded as the king piece in the above list, builders understand that scheduling is only effective if it is fully integrated with all the other processes. ERP systems are obvious candidates when tight integration of all business processes is a key requirement. Whether ERP is the best choice for home builders can only be answered if we take a closer look at the space of ERP systems and their vendors. ERP systems are conceived to support the full palette of functions listed above. A few bottleneck functions in the home building business jump out, mainly forecasting, customer relationship management and supplier relationship management, the latter strongly coupled with supply chain management and job site management. It is obvious that for ERP systems to become the winning proposition, those are the key areas where superior functionality over existing systems will have to be offered. Conclusion: Due to its strong internal integration, the role of ERP systems in the construction sector, in particular in the home builder’s business deserves a closer look. ERP seems attractive as an all-round full-office solution but companies have to understand the full set of implications.

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WHAT IS ERP? Enterprise resource planning (ERP) is a state of the art business management tool, targeting the planning and management of all resources of the enterprise and its partners. There is a gamut of processes in a company's "back office" and “front offices” that need to be supported. They relate to planning, human resources, manufacturing, project management, distribution, shipping, and accounting. An ERP system integrates all of these functions into a single system, designed to serve the needs of each different department within the enterprise. ERP is as much a methodology as it is software. Typically it incorporates several software applications, brought together under a single, integrated interface. An ERP system serves multiple departments in an enterprise, and in many instances will transcend the corporate boundary to incorporate systems of partners and suppliers. The latter introduces vertical integration across organizations, exemplified in supply chain management. ERP systems convert data to understandable information for each participant in the process, whereas it provides a transparent view of actions that have been taken or need to be taken by other participants and the information used or needed for these actions. ERP systems are large and can not be thought of as simply a software application. Their footprint reaches into all corners of the company. In fact, each implementation is unique and is designed or configured to meet the specific needs of the client's business processes. Depending on the complexity of these processes an ERP implementation may require a large investment and may take months or years to complete. Although currently still requiring a substantial development effort, increasingly open architectures of ERP systems will eventually enable the plug and play integration of other (external or legacy) systems based on Service Oriented system Architectures (SOA). SOA and enterprise service enabling are crucial technical requirements to an ERP solution to be successful in this area. A European consortium on interoperability of business systems is one of the catalysts in this area (www.athena-ip.org). It is not uncommon that an ERP system represents a company's largest IT investment ever. This leads some companies to the prudent approach to implement ERP in a stepwise incremental way. Most ERP vendors provide the modules and implementation strategies to cater to this need. This phased approach can be buy functional area or geographical division by division. The decision to install an ERP system will bring about significant changes in how a company does business. Not only will employees have to get used to a new system and new interfaces, but workflows and procedures will change. The latter has ripple effects throughout the company and is often met with initial reluctance. The radical changes in business processes are in some ways disruptive, also for the job descriptions of the workers in the company.

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The pay back on these disruptive changes can be enormous, as advantages of the ERP system become apparent after the installation. The most immediate improvements are visible in the sharing of information across departments, workflows can be easily automated, and clients are much better served by having all information at your finger tips at all times. Someone in sales will easily be able to drill down to all information, orders, contracts, changes, customizations, previous contacts etc. to answer a particular client request. Obviously, workers need to be trained to learn the system, and the processes it supports. The training effort on the improved processes and the used solutions needed to achieve this can be substantial. Although different industries will have different pressure points in the decision to install an ERP system, a set of generally accepted advantages drive their basic premise. These are the company wide integration of information and processes, transparent life cycle management of projects, process automation and subcontractor- & supply chain management, and total cost management. An ERP installation is not cheap, but if well thought out and implemented, a company can reap rewards in obtaining a leap in effectiveness over the competition. The large amount of energy invested in organizational changes should be carefully weighed against the transition costs to ERP. The implementation of an ERP solution should be used to define and introduce best business practices and processes in a Business Process Management initiative to set the stage for an effective system implementation that adapts to the companies processes and not the other way round. The return of the investment should be carefully analyzed. One should not forget that management efforts to promote the project have a price tag as well.

ERP modules

Accounting

General Ledger

Enterprise database

Interfaces

Scheduling

Etc…

ERP overall system architecture

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The figure below shows the typical ERP system architecture. Through a series of uniform interfaces, different user groups access different modules of the overall ERP system. All these modules talk to a central back end database where all data is kept in a unified enterprise representation. The various ERP modules can be grouped in the two tiers that we referred to earlier: project facing and business facing functions. This is only a conceptual grouping as the big advantage of ERP systems is the tight integration of all modules, allowing all the benefits of integrated planning as for example in on/off site production.

Integrated information and planning of front and back office functions

Business facing

Project facing

Interfaces

Project planning Contracting PM Estimating Scheduling Quality control CRM Equipment plan

Planning Strategy Partnering Marketing Forecasting CRM Accounting Procurement Payments

Cost data HR Financials Partners Project data Customer data etc

Hybridization of production, merging off site manufacturing with on site construction

ERP functional modules in a home building enterprise

The unification of the “old” databases into one ERP system enables more reliable updating. It also forces the organization to decide who will be in charge of introducing the data and the parameters. With the rapid development of new markets and increasing number of products, the ERP system offers a reliable response to future significant increases in those areas. It can be scaled up to deal with enormous quantities of data. An important development in the delivery of ERP functionality is the migration to the afore mentioned Service Oriented Architectures (SOA) or more specifically in the ERP ERP for the Home Building Industry © Georgia Institute of Technology; Summer 2006

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sector to Enterprise Service Architectures (ESA). The major ERP vendors have all announced future developments along this path. In such an architecture the ERP modules will no longer be the self contained software applications in the traditional sense. Rather they will be configured as open services that can be approached by web enabled applications or be called upon to “service” external software application. The general belief is that this will greatly enhance modularity and openness of the next generation of systems. As a result the costs of configurations and maintenance are expected to decrease over time. The business promise of ERP systems is impossible to ignore but clients are also aware of critical issues that should be raised in the selection process. Among the broadly perceived notions about ERP, the one that is a constant is the impression that ERP is expensive to install and run. As a result, successful ERP installations are associated mainly with the larger size companies with deep pockets. Another lingering notion is that ERP roll outs take years to accomplish and once they are done, they have limited flexibility unless recurring large investment in configurations and consultants is made. Although this was true for the early days of ERP systems, the current facts show a changing picture. ERP vendors are aware of the above concerns and have developed product offerings and product and deployment strategies that respond to them. As ERP vendors want to increase their installed base in the SMB arena (perceived as their biggest growth market), scalability strategies are offered that allow clients to choose systems that fit their particular needs and allows them to grow with the system. SAP for instance delivers an out of the box start-up system for small enterprises with less than 100 employees, as well as preconfigured systems for medium sized companies in the construction industry. As a result ERP providers have been expanding their customer base in the midsize range companies. It is for example telling that 66% of SAP’s nearly 500 construction customers have less than 1000 employees. The move to ESA is expected to further enhance the introduction of tailor made systems sized up to the needs of individual customers. Another critical issue is the innovation capacity that ERP brings to companies. Analysts tend to agree on the human intellectual capital that ERP frees up in the enterprise, but point out that in order to benefit from this capital to drive innovation is a different ball game. In fact, critics warn that ERP systems bring a lot of value today but have yet to fulfill on their promise to keep companies with ERP systems ahead of their competitors. The more general question to ask is what the real and measurable long term ROI of ERP investment is, or more popularly stated “we run the company through an ERP, now what?”. Vendors have developed different strategies for vertical market segments. Some opt for one size fits all, betting on the configurability of their system to the special needs of each business segment, or of each individual company for that matter. Other vendors try to sell precompiled system components and business processes in domain specific products. Whatever the choice and size of systems, companies are looking at a deployment cycle which can seem daunting. As response, ERP vendors work with system analysis and design partners in strategic partnerships. These strategic partners assist clients throughout

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all phases of the ERP design, installation and roll-out, relying on specialized ERP vendor tools that are designed to ramp-up development and shorten system design. The migration of data out of the company’s legacy systems into the ERP system is a crucial step that needs thorough consideration. Another distinguishing issue for different ERP systems is the number of business functions that they support outside of the consolidated mainstream of ERP functionality (see the module above) for example in business and demand forecasting, CRM and others. Continuing acquisition of small dedicated system vendors by some and sustainable development by other ERP players is expanding the horizon of ERP tool functionality on a daily basis. But more important is the stability and openness of ERP systems based on technology standards so it is easy to be compatible with other solutions. In addition the open architecture based on enterprise services (ESA) guarantees flexible solutions. Conclusion: ERP systems offer strong business integration and the rapid expansion of the ERP functionality makes a one stop shop for the enterprise IT systems a reality. The successful deployment of an ERP system depends on many factors that should be carefully considered. ERP vendors are responding to critical user issues but ERP still needs thorough business process management as a prerequisite.

The landscape of ERP systems Business in the ERP segment has been steadily growing. AMR Research's annual report on the state of the market revealed that increasing demand for ERP systems helped push market revenues in the sector by 14 per cent in 2004 and forecasts for 2005 show similar growth numbers (http://www.advmfg.com/). While the study recorded growth in terms of sales, it was noted that consolidation continues to change the industry. In 1999, the top five vendors in the ERP market (JD Edwards, Baan, Oracle, PeopleSoft and SAP) accounted for 59 per cent of the industry's revenue. AMR expects the top five vendors in 2005 (SAP, Oracle, Sage Group, Microsoft and SSA Global) to account for 72 per cent of ERP vendors' total revenue. The study found that, while many ERP vendors struggled in the recent past, SAP increased overall and license revenues constantly over the last years organically without acquisitions. SAP's ERP relative market share increased to 47% in the US and more than 63% globally. Relative Markets Share of Application Software in the US:

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Oracle nearly doubled the size of its applications business through the acquisition of PeopleSoft (including JDE), but SAP finished 2005 with twice the revenue and market share of the combined Oracle/PeopleSoft in the US (nearly 4 times globally). According to an AMR study, ERP buyers are moving away from large upfront purchases, tending to license user seats and functional ERP modules incrementally as they deploy a product. Gartner publishes a Magic Quadrant for different sectors on a yearly basis. The 2005 version for the ERP sector is shown in the figure below. It should be kept in mind that the study reflects the manufacturing industry and may not fully apply to the home building industry. But as we explained before, within the wider construction industry, the residential construction is the closest to a manufacturing business, although there are distinguishing features as well. Unfortunately the analyst community does not evaluate separately for the construction industries as it dos in manufacturing. The picture shows SAP as leader, both in vision as well as in the ability to execute but some competitors are not far behind. Gartner is overall predicting slower growth and ongoing consolidation in the ERP market. Gartner also expects a significant redefinition of the ERP space as a result of the SOA based re-engineering of the code. The large companies with deep enough pockets to invest in this redevelopment seem to have the edge. More details can be found in the Gartner publication (www.gartner.com) with the magic Quadrant, dated 30 June 2005.

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Gartner’s 2005 Magic Quadrant for the ERP sector in manufacturing midmarket.

IS ERP THE RIGHT SOLUTION FOR HOME BUILDERS? If we look at the construction industry as a whole, the first broad scale adoption of ERP systems is taking place in the home building sector and by the large EngineeringConstruction-Operation (EC&O) contractors of capital projects. Indeed a growing number of large home builders have already installed ERP systems. In the EC&O sector, the likes of Fluor, Halliburton KBR and Bechtel were among the early adopters to install ERP systems. A second wave of growth can be expected in the smaller building product manufacturer segment and medium sized contractors. An additional (very large) growth potential is in the SMB sector where 70% of construction activities occur. Although the field is wide open, a culture shift may have to take place before ERP will be seen as a competing option versus the current match and patch system landscape in regular A/E/C companies that live off tendered projects. The future wave of adopters are most likely to be found in heavy construction such as road building, industrial construction and general contractors and furthermore in large engineering service companies that offer a highly dispersed but centrally managed set of services. As has been pointed to above, the business situation in the home building segment reflects a manufacturing oriented business model. This segment offers therefore a high

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immediate potential for continued ERP growth with knock-on effects throughout the construction industry. Home builders have a long track record of investments in “best of breed” IT systems to keep up with the business demands such as diversification and customization, customer satisfaction, cash flow and financing models, project management, supplier relationships and quality control. In many cases these investments have created pockets of efficiency but have also left disconnects where different business functions fail to integrate properly, often hindering the introduction of improvement of business processes. The promise of ERP systems to the segment is the removal of these disconnects leading to cost savings resulting in a sharp increment in business performance. The main question then becomes when the time is ripe to make the jump towards a business wide ERP system. The answer to this question really depends on the type of challenges an individual home builder faces. Whereas residential construction is facing challenges from within, it also has to deal with inevitable changes from the outside. Some of them are slow changes in the market; others may require more radical changes. The overall challenge is to do more with less, make the business more efficient and increase responsiveness to changing markets and increasing customer demands. One of these changes for instance is growing importance of the high end of the market (one million plus). The demand has been expanding rapidly and entry in this segment is a lucrative proposition. The segment is typified by highly customized and ever bigger houses. Builders need to develop a rapid response strategy to cater to the needs of their affluent customers to be successful. Houses with structured wiring are another trend of the future. Staying ahead of the curve poses challenges in product selection, marketing and implementation. The home buyer expects an integrated total package. This can only be achieved through smart alliances with suppliers and installers. First movers in this area will gain a competitive edge. In a recent study by the American Institute of Architects the following design trends were found dominant (www.AIA.org/econ_designsurvey_results): - better accessibility (wider hallways, fewer steps etc) - increasing “informal” space with a trend towards open space layout - increasing home size - increased indoor and outdoor living space (finished basements and attics, upscale landscaping) A gradual change which ties in with the above is the continuous movement towards the hybridization of production where major housing subsystems are fabricated off site and coordinated with on site construction activities. Other critical challenges that home builders face were recently surveyed (www.housingzone.com): - Leveraging existing customer data - Financial business planning - Integrating separate divisions into an integrated (web enabled) data repository, eliminating redundancy in data and process - Strengthen critical supplier relationships

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-

Shortening of procurement and subcontracting cycles Satisfying customer demands through the complete life time of the projects from marketing to post occupancy maintenance Fully integrating critical process, including campaign-to-cash and contract-toconstruction More accurate job costing Greater visibility and transparency in key functions such financing, controlling, purchasing and HR Migrating from an invoice-driven business to a plan driven business

Among the systems that are considered to confront those challenges are: - Business Intelligence (BI) - Customer Relationship Management (CRM) - Supply Chain Management (SCM) - Human Resources (HR) - Financials - Project Lifecycle and Data Management (PLM) - Supplier Relationship Management (SRM) How to purchase appropriate systems to support these functions is the ultimate challenge that companies are facing in the next couple of years. Surveys show that companies are struggling with this and analysis firms are jockeying for position to analyze systems and provide guidance. Probably the most difficult choice is whether to buy/upgrade these systems separately or go for a “one stop shop” and buy a full blown ERP system. It requires weighing the advantages of dealing with a complete system from one vendor against the advantages that some best of breed solutions may offer in the system cocktail offered by a mix of different vendors. Corollary questions that home builders have, relate to the support for web enabled access, mobile connectivity to data and process, standards based interoperability between systems. One of the biggest concerns is also the level of adaptability to the size of the company. Vendors are hearing this question more and more and the response is beginning to become a major ingredient of the vendor strategy. Client’s fears to pioneer into uncharted areas are unfounded as the ERP pioneering days are over. The ERP vendors indeed report a steadily growing customer base in the broad EC&O (Engineering, Construction and Operations) segment. For instance, SAP (www.sapbuilding.com) reports an average yearly growth of 33% since 1991, amounting to a customer base of 450 in 2005. Looking at the customer base in the different segments within EC&O shows that the majority (50%) of companies are in the non-residential construction segment, and 11% (50 companies) are in the home building sector. 66% of the customer base employs less than 1000 people. Very few ERP installations are reported in the average general contractor firm whose size and operation is limited to the civil facilities in the corporate and public arena, i.e. projects with a budget below 200 M. A typical scenario of ERP selection by a home builder If we look at the situation of a home builder company that finds itself at the crossroad of a major IT systems upgrade, we typically encounter the following starting situation:

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-

-

-

the company has been existing for some 30 years or longer, was originally started as a family business and has undergone tremendous growth through business expansion and acquisitions in the process the home builder has diversified, e.g. offering financial and other home buyer end services, and is active in three or four different regions with semi-independent local presence in each region it is locked into a certain segment of the marker but does not want to exclusively stay there it carries a heavy legacy in number of built units that require care in the after sales market, but feels under equipped to provide the best services the company is constantly struggling to confront its growing pains with its current patch work of different systems in particular, it feels that its processes cannot meet its most important business drivers as the systems cannot keep up with its needs.

When the home builder starts looking at an ERP system as the all in one solution, these unmet business drivers and challenges become its guiding rod in the selection process. The main business drivers are: improving cycle times, improving integration between the front end project processes with back end office processes, improving business intelligence in lead and prospect tracking, capturing project performance, and improving material supply, purchasing etc.. In other words, creating productivity improvements all round. Depending on the specific circumstances of the company, a business “TO-BE” analysis may have revealed that these improvements will be hard to reach with the current set of legacy systems and “frozen” processes in place. The company may then decide to take the plunge and start looking at ERP systems as the best way forward. This decision may be far reaching as it embarks on a re-thinking of the whole company and aligning it with the right set of proven best practices and possibilities of the integrated ERP system components. In the first year of the selection process a scope definition is undertaken followed by soliciting proposals from an initial set of invited vendors. In this stage it is normal that vendors that sell products in a particular segment will be lined up with ERP vendors. The selection and comparison process ultimately leads to a small number (3 or 4) of finalists. During the scope definition (the most crucial part of the whole process), it is important to define the scope of the business redesign, i.e. what business services and sub divisions are targeted, and how will they be phased. This is the right time to decide on what “excellence metrics” will be deployed in the selection and deployment process. The next step in the scope definition concerns functionality; this step lays out all the major business processes and defines how they will be connected in deployment phase x, and which business divisions or local presence affiliates will be affected by the process redesign. All central and local sales and production offices and manufacturing facilities must be indicated at this time. The importance of the phasing of the roll out of different stages of the ERP installation cannot be stressed enough. The analysis should start with the analysis of typical business functions that will be considered at different stages of development. As an example, the following table shows the list of major business functions and a typical set of functions tackled in phase 1 and phase 2.

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Major Business Processes in Home building First deployment phase Second deployment phase Bidding/contracting Contractor evaluation Sales and order processing House/Job Costing Customer support Bills of material General ledger Option costing Job costing Option Configuration Accounts payable/receivable Product setup Fixed assets Prospect tracking Estimating Construction Scheduling Bid analysis Resource management Contract management House closing Purchasing Warranty Contract payment Inventory management

The second step roadmaps these business processes into efficient process designs that highlight the moments and needs for integration of data and processes. One of the most relevant process paths may for instance reveal the need for project life cycle management, i.e. from Order entry to Job planning/scheduling to Job execution/management to Contract management. The following figure shows the streamlined version of interconnected process steps (source: PATH technology roadmap, November 2000; www.pathnet.org).

Developer Builder Regulator Lender

Engineer Architect Builder Buyer

Marketer Sales Buyer Lender

Manufacturer Distributor

Marketing and Sales

Land development

Building design

Sales Buyer Lender

Estimator Builder Suppliers Constr. Mgr

Builder Subcontractors Inspectors Shippers Manufacturers Suppiers Engineer/Arch Lender Buyer

Builder Buyer Banker Attorney

Owner Manufacturer Builder Subcontractors

Materials Purchasing and Scheduling

Financing

Materials and Systems Selection

Builder Constr Mgr Suppliers Subsontract.

Takeoff Estimating Scheduling

Construction Closing

Warranty Period

Subcontractor Selection and Scheduling

Approval

Approvals and Permits

Inspection Inspection And and Approvals Approvals

Process map of residential construction enterprises Original source: Center for Housing Research, Virginia Polytechnic

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Streamlining the process must be accompanied by fundamental improvements, especially in the area of a better hybrid mixing of manufactured and on-site production, better coordination of the disaggregated supply chain, and above all the introduction of integrated wireless communication and RFID technologies. Other new areas that are not receiving the attention they deserve are shell and infill technologies, especially relevant for multi family housing projects.2 Looking at the need to coordinate the whole process and anticipate the inclusion of these new technologies, the single most daunting task for home builders is to bring the business in line with the streamlined process and choosing the IT systems that best support it and create the least friction in going forward. Depending on the scope definition, business drivers, company wide integration needs and the needs to information access (rich content in one place and always up to date), an ERP vendor likely be the candidate with the winning proposition. In previous cases, a variety of situations have lead to ERP installations being chosen by home builders (source www.SAPbuilding.com): - unified collection and integration of data, offering infinite ways to aggregate and view this data; for instance, closing out quarters can become a matter of days rather than weeks or months - significant reduction of cycle times through better control and management supported by uniform access to integrated and up to data repositories as well as elimination of “human interfaces” between systems. - managing the overload of scheduling activities with constant updates from the field and the need to keep project and line managers as well as customers informed and involved - across the board cost reductions and efficiency improvements through process redesign and integration - the seamless integration between project facing processes (project tracking)and back office business procedures - improving communication through all channels and avoiding any inconsistencies in data or processes - improved interaction with suppliers - improving the front office and field workers with better access to always consistent information - for a manufactured home supplier: faster reaction time between changing customer demands and adapting shop floor, manufacturing process, lower inventory levels and exploit economy of scale with suppliers. Improved management of the value chain is one of the key objectives to make the manufactured home segment more competitive

2

A good source for the latest research agenda in h ousing can be found in a recently published article: Practitioners Forum – Housing Research Agenda for NSF-PATH, ASCE journal of Architectural Engineering, Vol. 11 Issue 1, march 2005).

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ERP adoption is not without pain but rewards can be high In spite of the overwhelming growth and success of the top vendors in the ERP space, things are not without worries, both for customers and also for the vendors. These worries will become stronger if ERP vendors fail to address some of the major pains that customers feel. Among these are the IT infrastructure costs, including maintenance and upgrades as well as the viability and long term strategy of the vendor. Therefore the quick win has to be evaluated as well as the mid- and long term TCO. User commitment and associated training needs are also issues of concern. Companies soon learn that project controls, global resource availability, regulation compliance, focus on process improvement are now the key enablers of business improvement, not the software. This requires a culture change in the way the IT department interacts with the rest of the business. IT vendors are in the process tol transform from a technology provider to a business enabler to accommodate this culture change. Another lesson learned is that the alignment between middle and higher management is crucial to benefit from the streamlined processes. In addition, such a change has to be sponsored and backed by the executive management. Breaking though the barrier of old processes and silos of knowledge is a people issue and less an ERP systems issue. The activation of change processes has to begin on the individual worker level in orchestrated sessions. Only this will establish the firm understanding of processes across departments. If companies forget this lesson, the reality hits hard two days after “going live”. Testimonials by ERP managers in various branches typically report that after 12 months the implementation reaches a stable enough state to start re-engineer and improve processes. The metrics for adoption success should deal with both short and long term benefits. The short term economic indicators can include the usual balance sheet figures such as revenue growth, operating margins end ROIC. ERP vendors post testimonials from users that show convincing improvements in these numbers compared with non ERP users. Obviously interpreting the true value of these numbers is not that straightforward but it seems to indicate that leading and forward thinking companies can outgrow their competitors even more when adopting ERP systems. Comparing the reported KPIs in annual reports of Construction companies for example show the following results: KPI

Capital Utilization (Amount required to generate 1 dollar of Revenue) Fixed Asset Utilization Selling, General and Administrative (SGA) Costs Days in Inventory (DII)

SAP Customers Performance $0.74

Non-SAP Companies Performance $0.98

Key Performance Difference Relative To Companies Not Using SAP Utilizing Capital 24.7% more effectively

$0.27

$0.35

12.4%

14.7%

60 Days

107 Days

Operating with 24.4% less invested in Fixed Assets Controlling SGA costs 16.2% better Operating with 47 fewer Days in Inventory

2004 Performance Highlights ERP for the Home Building Industry © Georgia Institute of Technology; Summer 2006

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KPI

SAP Customers Performance

Fixed Asset Utilization Trend Selling, General and Administrative (SGA) Trend Days in Inventory (DII) Trend

4.1% Improvement

Non-SAP Companies Performance 0.7% Degradation

2.9% Improvement 1.0% Improvement

6.8% Degradation 4.4% Degradation

Three Year Trend Relative To Companies Not Using SAP Improving Fixed Asset Utilization while others are losing ground! Controlling and reducing costs while others are increasing! Reducing Days in Inventory while others are increasing!

Key Average KPI Trends Over Last Three Years (2001 – 2004) Source: Stratascope® Inc. EC&O Companies Benchmarking study conducted May 05

How the improved revenues and faster cycle times compare against the total investment costs is however not always obvious, especially as many home builders were not able to track many key performance indicators before implementing an integrated system. Ongoing academic studies are trying to develop IT and business “maturity models” which will help to determine when a company is ready to embark on an IT implementation. For the time being every company should do its own research and take a critical look at its readiness to take the plunge. A clear phasing should be made leading from “streamlining” the business to “re-inventing” the business. Success in ERP implementation depends on a consistent pattern between IT strategy and business strategy, involving total commitment from all levels of the company and a clear statement of the organizational changes that are needed or expected. The organizational and technological agenda will contain both strategic and tactical objectives that should be well understood by everybody. Among the organizational objectives the following can be listed as strategic: - Management support at the highest level - Organizational change management that is effective - Good scope management - User involvement and participation The tactical needs relate mainly to dedicated staff and consultants, strong communication inwards and outwards, adequate training program and a formal project plan and schedule with buy in from everybody. The technological agenda’s strategic issues relate to an adequate ERP implementation strategy (pinpointing customization where needed). At the tactical level the basic preoccupation needs to be with adequate software configuration and how to integrate of phase-out legacy systems. Conclusion: ERP systems hold a strong promise for the home building industry. They can improve efficiencies, labor control, production control with optimized material flow and task scheduling. As a result it can reduce job site waste and shrinkage, reduce cycle times, increase quality of workmanship through better coordination, and add to the safety of workers overall leading to reduced cost and a higher customer satisfaction. For the construction industry at large the lack of established IT system standards, the fact that

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traditional business practices are hard to change and the fragmented nature of the industry are inhibitors that need to be reckoned with. ERP introduction needs careful planning and a sound assessment of the risks and duration of the implementation. But have to be preceded by a detailed business process management plan. A change in culture and mindset among all workers of the company is required. ERP system vendors are facing the challenge to reach the large number of small and very small companies in the home building industry. Their success will largely depend on incremental introduction of priority functions at reasonable costs and implementation time. Whatever system is the first to market to offer this through reusable industry templates and modular configurability could well become the champion for the mid-size and small home builder. To get to that point, educating the industry from the top level management down is an important priority.

About the author: Godfried Augenbroe has a 25 year track record of research in building technologies and IT systems for the building industry. He currently advises graduate students in the building technology track of the Doctoral Program in the College of Architecture at Georgia Tech. He has chaired several international conferences, is associate editor of two scientific journals, is a regular keynote speaker at international conferences and has published over one hundred refereed papers. Augenbroe has managed several large international research consortia and is the editor/author of two books.

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