ARCCA Archives, Specialist|

Silvercrest Homes[/caption]

[Originally published 2nd quarter 2011, in arcCA 11.2, “The Business of Architecture.”] __________

Authors: Paz Arroyo is Civil Engineer from Chile. She worked as a project engineer at a consultant company and later as chief of the Integrated Management System Department for a construction company. Currently she is pursuing her PhD at the University of California, Berkeley, where she is interested in lean construction and sustainability. Merry del Val is a practicing architect in Madrid, Spain, with professional experience in Singapore, Europe, and the US. She received her MArch degree in UC Berkeley and her Bachelor of Architecture in ETSAM Madrid, where she is currently pursuing a PhD in Architectural Construction. Jeremy Fisher is a Master of Science in Architecture candidate at UC Berkeley and has worked in the construction industry for over 16 years. Before returning to school he worked with ZETA communities, managing the construction and installation of their first home in Oakland. He is now a researcher in the Energy Performance of Buildings Group at Lawrence Berkeley National Laboratory. Nicolas Gasztych is a Architectural Engineer. He has contributed to this article during a one-year graduate exchange program at University of California, Berkeley. Noy Hildebrand holds degrees in architecture from RISD and in building science from U.C. Berkeley. She currently resides in Melbourne, Australia. Lynn Hiel is a recent graduate from the Civil Engineering & Project Management Masters Program at the University of California Berkeley with a minor in sustainable design. She is interested in the opportunities prefabrication presents to integrate green engineering and lean management strategies, in function of sustainability in design and construction.

__________ Since the financial crisis of 2008, the prefabricated building industry has undergone recession, forcing both well-established companies and venture-capitalist start-ups to reflect on their goals and respond in diverse ways, according to the differing situations of their assets and liabilities. Historically, affordable manufactured homes have been produced through low cost materials and high volume production. The next generation of prefab companies is applying IT industry approaches to R&D, sustainability and improved quality. Lacking high volume production and still largely funded by venture capital, it remains to be seen which, if any, of the models will succeed. Six students from the UC Berkeley graduate course entitled “Off-Site Fabrication,” taught by Professor Dana Buntrock, have examined this question. Based on original interviews with management and employees conducted during visits to fabrication plants and constructed projects, the following article is a brief synopsis of three case studies, providing a sample of the current prefabricated building industry in California: Silvercrest Homes, Zeta Communities, and Project FROG. For more on Project FROG, see the following article. SILVERCREST When Silvercrest Homes was founded in 1969, most other modular housing manufacturers led a dictatorial marketing campaign focused on high-volume production. Within a market dominated by standardization and uniformity, Silvercrest saw a business opportunity: customized homes to accommodate each market segment’s particular needs. According to Al Whitehouse, Silvercrest/Champion Homes General Manager, Silvercrest at its peak reached a target market ranging from families to the elderly and all homeowners in between. Silvercrest Market Approach During the market crisis, the costs of core commodity materials escalated. To survive in these conditions, Silvercrest fixed the budget they allocated to these variable costs and did not absorb the periodic price increases, which material cost erosion necessitated. Silvercrest had to consciously develop a home series that had a lower material content in one form or another and drop down from their original target. In addition, an uncontrollable retail marketing backlash has forced the company into an even tougher financial situation. In the Silvercrest production process, the customers pull the system. The company only starts to build a house when there is a buyer, usually a developer. Since the market downturn, the company has closed 68% of its plants in 11 Western states, which has also impacted developers such as Sandalwood Estates, who relied on Silvercrest for decades, according to Sandalwood Estates Community Manager Kathy Fiebiger. Since the closure of the Silvercrest Woodland plant, the over four-fold increase in transportation costs is no longer economically viable for this developer. The market for Silvercrest homes has also reversed. Originally, Silvercrest was the largest provider of modular homes for large private properties. Today, 70% are installed in mobile home parks, and only 30% are on private property. As a result of all these factors, Silvercrest has been forced to deviate from its original market stronghold of higher quality and more expensive homes. They have developed a product series equivalent to those of their competitors and are selling these homes at even lower price points. Currently, Silvercrest is also hoping to diversify its market by working on a variety of commercial projects, including offices, churches and synagogues, veterinary hospitals, and daycare centers. Silvercrest Production Six years ago, Silvercrest began implementing Lean Manufacturing methods in an effort to improve production efficiency for the future. According to Mike Hutchinson, Silvercrest/Champion Homes Quality Control Manager, they invested heavily in training all personnel and adopting policies of “continuous improvement” to change the company culture. The new Lean production schedule depends on the plant’s activity, backlog size, and product order urgency. If enough orders are ready, a batch of ten houses is released to production. Silvercrest has not yet realized the potential benefits of Lean management, but their creative approaches to optimize production efficiency and more collaborative relationships with their supply chain and customers will potentially be a tremendous advantage once the economy recovers. Silvercrest may be capable of offering better quality houses for a low target price. ZETA ZETA, an acronym for Zero Energy Technology and Architecture, is a venture capital start-up founded in 2007. Their target market is high production, sustainable, and net-zero energy modular building solutions for mass-market adoption in the United States. ZETA Co-Founder Shilpa Sankaran notes that, observing the collapse of popular “prefab” companies, it became apparent that a business model focused only on single-family homes was not scalable. After their first successful project in Oakland, California, in order to increase production capacity, they leased a 91,000 square foot production plant in Sacramento. ZETA Market Approach ZETA’s target markets are not only multi-family and single-family housing, but institutional and educational facilities as well. This scope requires them to be flexible in both their business plan and production system, according to Sankaran. They have adapted their original business plan to include not only design and production, but also funding sources, planning, zoning, code compliance, and state approvals, in order to facilitate developers throughout the process in adapting to prefabricated systems. This concept of flexibility raises the issue of standardization vs. customization. Ideally, the product should include as few customizations as possible. The reality, as ZETA General Manager Kara Tarango notes, is different: “You don’t dictate what you are going to build, the market dictates. The only thing you can dictate is how your product will adapt to the market.” ZETA Production ZETA originally tried to incorporate IT industry production systems into the modular building industry. However, a modular building company might produce 10 products a day with 10,000 parts, while a computer plant produces up to 10,000 products a day with 10 parts. These fundamental differences resulted in numerous production challenges during the design and construction of their first project. In response, they incorporated traditional factory building expertise and leased a high production capacity modular building production plant. The new plant consists of a low-tech automated tiger saw, along with insulation, polyurethane glue, and paint spray stations. The rest of the production assembly line utilizes standard construction equipment optimized for labor efficiency. Their designs and materials are high quality, sustainable, and energy efficient. All buildings are “Net-Zero Ready,” allowing customers to add renewable energy to achieve net-zero energy. Unfortunately, since the production plant was leased, ZETA has not yet utilized their full production capacity; only five buildings have been produced. Due to the fact that ZETA is addressing the residential, commercial and institutional markets, they may have a market advantage over the other companies. Given their flexibility in market approach coupled with a very high production capacity, they are well positioned to be successful. Project FROG: “Better, greener, faster, cheaper” Project FROG is a venture-backed San Francisco-based firm specializing in high performance, prefabricated classrooms. Run by business professionals and designers, this company differentiates itself from other modular building companies in its approach and structure, as well as its intended market. From the start, explains Evan Nakamura, Senior Director of Product Development, Project FROG avoided the capital-intensive investment of their own production facilities, opting instead to closely partner with fabricators to develop and produce the building components. The company focuses on developing turnkey buildings with a systematized, pre-engineered kit of parts to achieve efficiency with flexibility. Project FROG Market Approach Originally, Project FROG saw its business opportunity in the increasing demand for fast, flexible, and affordable portable classrooms, which until 1998 were required to comprise 30% of the classrooms in California schools, according to the California Portable Classrooms Study (http://www.arb.ca.gov/research/apr/past/00-317_v3.pdf ). FROG classrooms present a healthy alternative for existing portables, but since “FROGs” are prefabricated but not “relocatable,” they have had to follow the same lengthy funding process as permanent classrooms. Project FROG Production: the Kit of Parts Project FROG is based on the concept of product development, similar to Apple or Boeing, which through design iterations creates a highly systematized kit of parts, produced by a network of fabricators. One of FROG’s novelties is its implementation of energy and cost modeling to achieve climatic adaptation and precision fabrication through the combination of interchangeable components. The key challenge here is to find the optimal point between manufacturing efficiency and the customization demanded by clients. The kit of parts, which specifies very precise connections and tolerances, requires a carefully managed network of suppliers and transportation schedules. Because of decentralized production, all components are first assembled on the building site, requiring additional costly labor if unforeseen issues arise. The company has invested significant venture capital in order to explore and implement the customization necessitated by climatic response, clients’ needs, and technological systems. With costs similar to those of traditional buildings, speed and technology seem to be FROG’s primary assets. Selling greenness and technology while keeping prices low remains a tough challenge, especially in this economic downturn. Conclusion Since 2008, all three companies have had to reorient their market approach to incorporate greater market diversity and production flexibility. Furthermore, all three are struggling to find the balance between customization and high volume production in order to survive. While the older establishment has focused on achieving economies of scale more efficiently through the implementation of lean strategies, newer companies anticipate that innovative production tools and IT, as well as higher levels of customization and quality, are key to the future of manufactured architecture. Another key distinguishing factor is the scope of the companies’ networks in their target market territory. Silvercrest has only limited tools in place for a new market, but can depend on its reputable roots. On the other hand, the start-ups face a more tenuous future; Zeta is having trouble launching, while FROG seems to be only slightly more successful, with lower capital demand and a more template-based approach. Despite their strong sources of capital and firm expectations that architecture needs manufactured production, will they gain enough leverage to become a viable and sustainable business? This is a challenging time for the construction industry as a whole, and, in spite of its promise, the off-site fabrication community is not immune to this drastic economic downturn. However, California, more than most states, has long been a leader in off-site fabrication practices. Japan, our seismic sister across the ocean, has demonstrated the value of rapid and large-scale production plants as we were completing this article. Several hundred extremely small housing units were in construction within a week of the March 11th earthquake and tsunami. Will our industry be ready when it’s our turn? Editor’s note: As of press time, GE has led a $22 million investment round in Project FROG and begun construction of one of its prefabricated environmentally sustainable buildings at GE’s Learning Center in Ossining, NY.]]>

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