Every contractor is familiar with the first Law of Construction: Work can be done in two alternatives from a choice of three -- good, fast or cheap -- but under no circumstances can work be done in all three. If customers want it good and fast, it won't be cheap. If they want it fast and cheap, it won't be good.
But has anyone tried to get that law past a customer lately?
"I know there isn't one customer I could say that to now, or else our company would be removed from the bidder's list," said Rob Biederman, senior vice president, Kinetics, Tempe, Ariz. "They want all three now."
Today's customer demands that contractors consistently improve quality, compress schedules (since you did it so fast the last time), and reduce costs. "And, oh by the way, there's another factor -- they want it all done safely, too."
Biederman made his remarks at a prefab seminar put on by the Mechanical Contractors Association of America in May in Phoenix. Biederman and other Kinetics execs hosted the day-long event that operated on the theme, "Is It Right For You?"
It's hard to argue that prefab isn't right for you. By and large, contractors would be hard-pressed to find many other ways with which to allow as much cost control as possible and leave as little else as possible to chance:
- Speed: Naturally, work in a prefab shop is done more quickly than work done in the field. Modules can be assembled and tested, transported safely and quickly installed as a single unit. Faster installation improves job workflow all along the line.
- Quality: Prefab allows for work to be done to much more critical tolerances. Any problems can be identified and corrected before any fieldwork is begun.
- Scheduling: Work doesn't have to be done elbow-to-elbow with other trades at the jobsite.
To that end, Kinetics, ranked No. 2 in our annual Pipe Trades Giants list, operates a total of 500,000 sq. ft. of prefab operations, including 100,000 sq. ft. in four shops in the Phoenix area.
Cultural ShiftThe main struggle mechanical contractors have to contend with prefab is what it is not. It is not the rough-and-tumble world of construction, but a controlled manufacturing operation in which information about the job is even more important than fabricating pipe for the job. Each has to move seamlessly (and effortlessly) throughout the company.
Becoming a "manufacturer" of prefabbed pipe is exactly the cultural shift that J.F. Ahern Co., Fond du Lac, Wis., undertook two years ago in a top-to-bottom re-engineering of its pipe fabrication division.
"We started with the simple goal of trying to do more with less," says Tony Ahern, executive vice president of J.F. Ahern's pipe fabrication division. "We tried to adopt every possible efficiency we could, and develop a standardized process along the way."
J.F. Ahern, ranked No. 21 in our Pipe Trades Giants list, isn't a prefab rookie. Founded in 1880, the company does mechanical work throughout the midwest, and fabricates for cutomers throughout the United States. It began its prefab operations in the late-1960s. Up until a few years ago, the company focused its prefab efforts on the municipal water and wastewater industry. In 1997, however, the company became a separate division and ventured into the industrial markets -- largely power plants, but also pulp/paper, food, beverage and pharmaceutical facilities.
At first, the company tried to do more with more. With an increase in sales, the division attempted to grow externally by trying to acquire another fabricator. While that venture proved unsuccessful, the company also expanded its own operations and hired additional staff.
While much of this activity was going on, management realized it had to find internal ways to become more efficient, and achieve the growth it wanted from new markets.
"A company has to be introspective," Ahern explains. "You reach a point where you have to decide whether you're going to solve a problem by just throwing money and people at it, or take the time for a hard look in the mirror and figure out how you need to change."
Easy GoLooking back on it, much of what the division did was fine as long as it only catered to the municipal market. Very comfortable lead times existed for fabrication and all the related engineering, scheduling and material procurement activities. In many cases, lead times were as much as six months -- sometimes even a year.
What's more, since the municipal work required little design work for the fabricators, little, if any, change orders were encountered. The normal procedure was to break the job into manageable segments, complete engineering, prepare material takeoffs from approved drawings, order and receive the material, then schedule and complete fabrication in concert with committed shipping dates.
The industrial world wouldn't have any of that.
"With municipal work, there are more defined procedures on what to do," Ahern explains. "With industrial work, it's more, 'Here's a set of plans, get going.'"
Long gone are those cushy lead times. With industrial projects, as little as three weeks can pass between the winning bid and first expected shipment of prefab. Also, the customer controls the design and, since the piping in industrial projects is usually the easiest part to change due to field conflicts, change orders are an everyday event. Hence, many prefab activities that were once completed sequentially were now bottled up in the middle and had to be achieved all at the same time.
If that wasn't enough, the next dilemma the company faced was allocating its engineering and administrative support. One municipal spool often represented a dozen or more production man-hours simply because of larger average pipe and spool sizes. Industrial drawings, however, routinely represent only two to three production hours, plus the spool configuration and material are more complex.
As a result, time spent on engineering and administration support is often double that of municipal work to create the same backlog for the shop. In most cases, the company found that engineering resources had to be committed and materials ordered (from the estimate) immediately after the award of a project.
Oh yeah, and there's one more difference. Industrial customers often reprioritize piping systems or stop work on some systems entirely after Ahern's resources had already been committed to that particular part of the project. So maintaining a production backlog for the shop was becoming a major problem to say nothing of all the other activities, such as inventory management. (For more on the differences between municipal and industrial work see the chart, "Night And Day")
"With industrial work, we're often putting together a jigsaw puzzle -- and we don't always have the picture on the box to go by," Ahern adds. "We need to know exactly where everything is and at what point in the process it is. Is it cut? Is it welded? Is it shipped? And we need to know all this on a real-time basis so we can call the customer back and say, 'Thank you very much for letting us know about the change. We'll do it the way you want to do it.' There's no other response than that."
Re-EngineeringThe re-engineering effort began with a complete analysis of every single existing process, hence the project's name, "From Estimate To Invoice." Management scored early victories by scrutinizing internal processes to eliminate redundancies and wasted efforts.
The prefab shop also implemented "cell manufacturing" in order to optimize every square foot of capacity.
"A construction mindset would revolve around giving one man a spool, then letting him go out to the yard collect his pipe and physically layout one isolated job," Ahern explains. In many ways, it's almost how you'd expect to put a job together in the field.
Cell manufacturing, on the other hand, is more of what you'd expect to see at a General Motors plant. A cutting cell, for example, will be set up for, say, 2- to 6-inch pipe, and one man will be in charge of cutting pipe for multiple jobs. After the cutter's job is complete, he'll feed his pipe to another cell that may be the first fit cell. Afterward, the pipe will head to the weld cell, and then perhaps to a second fit cell.
"You end up eliminating bottlenecks by having a repetitive action with minimal setup time," Ahern says. "And that adds up to the type of efficient work flow we need in order to stay on top of our customers' needs."
Automating DataWhile restructuring workflow was vital, automating data throughout the company's department is the real linchpin for all the other changes the re-engineering effort made possible.
"Handling data is paramount," says Scot T. Forbes, senior quality management consultant, Tech Aid, Luxembourg, Wis., who was called in to help shepherd the effort. "The amount of data is so enormous in this case, that no one person could ever get a handle on it. The more manual steps you have, the more potential you have for one mistake to trickle down and cause even bigger problems elsewhere."
The division was doing a lot of manual steps that didn't necessarily translate well from one department to another. Engineering had its own methods; estimating had its own.
With municipal work, it didn't matter so much since time was on the company's side. But not so with industrial markets. Hence, it was all more important to re-evaluate data entry procedures and how existing software treated this work in order to integrate a fully automated manufacturing management philosophy throughout the operation.
Forbes started by establishing "global standards" -- essentially databases that could be shared by all the division's core software applications. Out went all the redundant variety of labor codes and material codes that meant one thing to some and nothing to others. Much of the global standards resulted from paring down redundant codes. Ahern says material control people whittled 10,000 different codes and part numbers down to 2,500 basic configurations.
"Global standards cannot have any ambiguity," Forbes explains. "That way even though they will be used in different applications by various departments, the starting information will all be pulled from the global standards. As a result, the data can move seamlessly from one department to the next."
The various core application programs also all have to be "open" in order for this communication to happen. In computerese, this is referred to as "open database connectivity," or ODBC, which allows the output from one application to feed the next, eliminating any repetitive keying of the same old same old.
While the applications could talk to each other, the division still needed a computerized traffic cop of sorts to quickly report the status of where a particular project was at a specific point in time.
In this case, there was no off-the-shelf solution. Certain manufacturing-oriented software exists, but none tailored to the needs of the piping industry. So the decision was made to purchase core application software (estimating, engineering, inventory control, etc.) and build a custom, in-house application to serve as the cop.
For example, take a look at the way in which automation releases production to the shop. Under the previous system, a set of approved drawings was handed off to material control personnel. That department compared individual drawing against inventory. Drawing batch sizes were purposely limited to 15-20 drawings in order to keep things manageable. If a shortage occurred (which was often) material control went through the task of separating drawings that could be issued, considerably adding to the time. In addition, the engineering software could not accurately calculate pipe cut lengths. As a result, this process had to be manually performed. Backlog information also had to be manually tabulated for each release.
In contrast, the engineering software now in use generates an external database containing pipe cut lengths, material and labor data. The computerized traffic cop reads that data, and since it is integrated with inventory and other applications, automates the release processes, adjusts inventory balances and keeps track of transactions and status. Pick lists, cut lists and material and labor summaries are generated automatically.
"Simply put, the re-engineering efforts helped us maximize the capital we invested," Ahern says.
The fabrication currently handles over twice the production volume with the same workforce it had before the re-engineering effort began. Any way you judge it, the re-engineering effort has produced dramatic gains since its inception:
- Increased sales by 279 percent.
- Reduced overhead by 187 percent (as a percent of sales).
- Increased sales per office employee by 271 percent.
- Increased the hit ratio on dollars bid by 400 percent.
- Added $500,000 to operating income.
Ahern says more innovation is in store, with much of the groundwork already completed for introducing bar codes to the prefab process.
"We've gotten good with flowing data, and we're going to get better," Ahern says.