Winchester Homes

Source: Construction Digital

Date :5/23/2007 11:35:36 AM

Winchester Homes: How to Manage Through a Slump

Written & produced by James Buchanan & Sean Bakke

Winchester Homes is using tried and true business strategy to maintain and grow its business during a down-turn in the housing market

In March, the U.S. Commerce Department reported that new home sales had fallen sharply in February by nearly 4 percent, which followed an even larger 15.8 point drop in January, the largest in 13 years.

For homebuilders, the last two years have not been exactly as spectacular as the land-rush earlier in the decade, when prices for new homes were on the rise and buyers were coming out of the woodwork.

So what’s a homebuilder to do?

If you’re Bethesda, Md., based Winchester Homes, weathering rough times requires adhering to the company’s principles and straightforward business concepts. For the company, that means relying on economies of scale to affordably produce one-of-a-kind customized homes.

“At the end of the day we are a retail business,” says Larry Burrows, president of Winchester Homes, “and, like any really good retail business, you need to know your customer, treat them fairly, provide what they want at a price they feel is fair, and know what your competitors are doing.”

According to Burrows, Winchester experienced particularly strong sales in 2004 and 2005. However, in the Metro Washington, D.C. and Baltimore area where the company operates, it noticed toward the end of 2005 and early 2006 that sales had started to slow. “For the majority of 2006 it had been significantly slower than ’04 and ’05,” he says.

To react to the changing market Winchester more heavily promoted its customizing program while introducing newer, fresher products. For example, the company completely redesigned its single family detached home line over the past year. The new designs were based on input the company has received from customers over the past few years and are now incorporated into the basic home design rather than as value added features. The net result is a better product at a lower cost to the customer, Burrows says.

The company is also creating more reasons for prospective customers to choose Winchester Homes. According to Burrows, in the past, homebuilders may have provided some assistance with the closing of a new home, but now are offering incentives of three to five percent of the price of the home. This can be realized in a reduction to the cost of the home, added customization features or upgrades to the home.

The result, says Burrows, is that Winchester has seen its sales increase in the early part of this year and is optimistic that they will have built 450 to 500 homes by the end of 2007.

He adds that building time depends upon how long the customer spends designing their homes, but construction usually takes approximately 100 days. Home prices range from $450,000 to $1.5 million.

Custom Designed, Value Built…

Winchester Homes provides what Burrows calls a “Large bandwidth of products,” to its customers. The company offers single family, detached homes from 2,400 to 5,500 sq. ft. and attached homes (townhouses and condos) from 1,300 to just under 3,000 sq. ft. The company’s homes tend to be on the higher end of the scale and can be customized with a number of options including solariums, studies, enlarged bathrooms, fireplaces, and almost anything else the customer can come up with.

“Our customer is a move-up buyer, largely,” says Burrows. “They are very experienced, know what they want and come to us to be able to have us provide that. So a big part of Winchester Homes value proposition is to allow our customer to customize their home through a program we call Your Home, Your Way.”

Prior to the start date for construction, says Burrows, the company’s customers can consider them as a custom homebuilder. “Once we start your home, though, could you please stay out of our way so we can use the economies of scale we have and the processes we have as a production builder to give you that value.”

Explaining further, Burrows says a custom builder will allow clients to make changes and come up with new additions throughout the entire process, from design to construction. However, that is predicated on the client paying for those changes and accepting that changes will increase the time it takes to build the home and hand over the keys.

Winchester, on the other hand, can offer a personal touch by allowing the customer to personalize and customize their homes during the design stage. Once those decisions have been made, the company can build the home quickly and economically by applying the same principles as a production builder by applying economies of scale through the company’s manufacturing process.

As Burrows says, the customer can design everything in the house through the company’s integrated 3D CAD program. Then the company can manufacture much of the structural frame of the home at its in-house manufacturing site and lumber yard. This allows the company to react quickly to whatever is on a set of plans.

“The customer comes in and selects a home style and changes things – move walls around, change the foundation, bump something out – and the computer system quickly draws plans and sends them to the manufacturing system to build it,” says Burrows. “We are able to essentially mass produce one-of-a-kind houses.”

The program, called Vertex, is more of a manufacturing-based product as opposed to true CAD construction software. It is able to provide a three-dimensional design to be created, which is very good for finding issues within the design before it is sent out to the field. Creating a three dimensional drawing also allows the customer to get a good view as to what it is they are building.

Further, the software allows Winchester to determine the materials needed to build the house and how to optimize those materials when building wall panels, trusses, floor systems, etc. “We can give our customer a pretty drawing, but really what our system’s power is, is that it includes everything behind the scenes,” he says. “Where do the walls go, where the studs need to go, what kind of lumber do we need to order for the wall and the studs, and then our manufacturing area can build within that.”

What is unique about this process, says Burrows, is at the front-end. The customer comes in, sits with a designer and says what they have liked about previous homes or unique ideas they have come up with and the designer will accommodate those desires.

“Once we have designed it and have it on paper, then the rest of the process would be just as similar to any other production home,” he says. “So that is where you get your value and your velocity.”

Burrows adds that Winchester is a panelized-builder, meaning the interior and exterior walls are preassembled, built in lengths and then shipped to the job site. The floor system is cut into lengths, but not preassembled, and those lengths are shipped to the site. Trusses are also preassembled.

Asked about amenities shared among homes within a community, Burrows says the company will build community facilities such as pools, parks, toddler areas, and if there is water nearby docks sometimes are build for access. He adds that some of the houses are sited in a manner to create hamlets, which creates more open space for these kinds of amenities.

Contractors…

At the community level, Winchester Homes has employees assigned to manage the day-to-day construction activities and schedules. Beyond that, the company relies on contractors such as framers, carpenters, plumbers, mechanical trades and so forth, to actually build the homes.

Within a community, there may be multiple contractors building the various homes, but each one must go through a prequalification process in order to place a bid. The company examines each contractor’s experience, safety record, quality of work done, bidding and pricing. Based on those criteria the company will send plans out and award contracts accordingly.

As an example, Burrows says when looking for framers, a community will be opened to qualified framers, bids will be received and a number of applicants will be accepted depending upon the size of the community being constructed.

To ensure contractors continue to live up to the company’s standards, Winchester scores contractors via its Quality & Safety system. The scoring system also identifies areas where the company itself could improve. “’Did I show up and the job was ready? When I left the job was the job complete? Did I work in a safe fashion and no one got hurt? Did I have the right tools and equipment?’ All of these things get looked at,” says Burrows.

Good scores will enable a contractor to continue working with the company. If a contractor receives a low score, Winchester Homes will work closely with that contractor in the areas where improved is wanted. If a contractor fails to perform, it will be replaced.

Supply Chain Issues…

Winchester Homes supplies the structural frame, the walls, the floors, ceilings, and the roof as well as all of the wood that goes with those items. Everything else, the lighting, drywall, paint, mechanical systems, flooring, appliances, cabinets, etc., will be supplied by contractors.

Coordinating how all of these items will arrive at the job site and when various contractors will arrive is handled through an electronic scheduling system for each community that is overseen by the company’s project managers. The system, while electronic, is not yet Internet based, but the company is moving in that direction.

Essentially, the schedule is created and sent to the contractors via email. When updates are added they are made to the schedule and emailed around to the various contractors. This means the schedule is not read by contractors in real-time, but updates are sent in an expeditious manner.

“If everyone is doing their jobs right,” says Burrows, “when they show up a prior trade’s work will be complete so they are ready to start their work. Sometimes we will find our guys helping to schedule and coordinate some of these elements as well.”

Ensuring the company has the materials it needs, especially lumber, is the role of purchasing agents. The purchasing agents, says Burrows, are based in the manufacturing facilities and have developed good relationships with the mills within the general vicinity of the company or that service the company’s area.

Winchester Homes purchases grade-A, or type #1 lumber. It places bids with a number of mills and basically looks for where they get the best pricing on the product it is looking for. The company tends to buy by the truck or trainload, as it has a fairly good idea of what its upcoming needs are going to be.

As to other materials, Burrows says the company is a subsidiary of the Weyerhaeuser Real-Estate Company (WRECO), which has four other homebuilders nationally. Winchester Homes has national accounts for various supplies with its sister companies. These needs include heating and air conditioning products, appliances, faucets and other kitchen and bathroom fixtures, hardware and so on. Most of these accounts are with national brand names such as KitchenAid for appliances, Kichler for lighting, and Kohler for plumbing.

Each of the subsidiaries has its own purchasing managers who not only hire the subcontractors but work in conjunction with WRECO’s head of supply chain, says Burrows. Collectively they decide what companies and products they want to work with.

Asked if customers could specify their own brands, Burrows says this is generally discouraged. “That is where we have good economies of scale in terms of purchasing power, delivery time and better warranty coverage. Usually, the brand partners we work with are very well known and of good quality,” he says.

Challenges to the successful management of the company’s supply chain have been relatively few, says Burrows. When the housing market was rather hot, around 2004 and 2005, they saw a fair amount of suppliers attempting price increases and some allocation issues. “But we have been fortunate to get what we need when we need it and not put on allocation,” Burrows says.

“Prices have gone up somewhat, but the last year and a half has been somewhat softer for the housing market so some of the pricing pressure and supply challenges we had in ’04 and ’05 have been arrested,” he added.

“Wire and concrete have seen supply shortages and corresponding price increases, but contractors have to say, ‘What am I gonna do?’ When demand is strong and your book of business is strong and your prices for materials are going up you have probably greater leverage to pass those costs through than when your book of business is not so strong. Then, you are making judgments as to what you are willing to do.”

The Competitive Edge…

Burrows notes that the key to the company’s success really has been its employees, because the ability to customize a home and deliver it seamlessly to a customer requires a tremendous amount of collaboration.

“It touches everybody in the company,” he says. “It’s not just the individual who sells the home or builds the home. It’s the designers. It’s our people who manufacture the parts we provide. It’s our purchasing folks for making changes with contractors. It’s our people in accounting who do budgets. It’s our settlement people who make sure the customer is getting everything they are bargaining for. It requires people who enjoy doing all that and enjoy working in collaboration with one and another.”

Telling a customer they can get their home their way creates a high expectation, Burrows adds. The people that work for Winchester must be able to meet that expectation and since the company is on the higher end of home sales, employees must be able to satisfy some demanding customers.

Finding employees that can manage high expectations, Burrows says, is something that should happen organically, because if the company is doing its job right it should be growing these employees. To enhance this kind of organic growth the company has a rigorous program of employee development that includes performance goals aligned with the company’s goals, individual training and an individual development plan.

“The individual development plan,” says Burrows, “is kind of a mutual agreement of skills, behaviors and exposure that people need and want so they can progress and grow. We spend a lot of time on training and placing people in new situations so they can learn and grow.”

To attract new and younger people to the company, Winchester Homes has established relationships with area universities that provide programs in construction management. These universities include Virginia Tech, University of Maryland at Eastern Shore, and Penn State. Through its university contacts the company brings on a number of interns for ten or twelve weeks during the summer, Burrows says.

“It gives us a good feel for their capabilities and at the end of the internship they know if they like us and we know if we like them,” he adds.

Employee retention strategies include training programs, but are also based on competitive salary and benefits and job satisfaction. Burrows says the company takes it as a given that it will offer salary and benefits at the higher range of the industry. To ensure job satisfaction, the critical questions the company asks itself include: Does the employer care about the employee, allow employees to grow professionally, provide opportunities, listen to and act on feedback, does the employer give back to the community and so on.

To provide a template to answer those questions affirmatively, the company created The Winchester Way, a document where managers and employees layed out the kind of environment and culture people want to work in. “We preach that and try to live up to The Winchester Way every day,” says Burrows.

Bring on the Technology…

The company is in the process of moving to bring an enterprise system called E-One online this summer. Burrows says it will be an integrated system linking accounting, purchasing, sales, settlements, all manufacturing and design, and warranty work.

Essentially, the system is a searchable database that will track individual lots from the time of purchase until after the warranty for the home has expired. “Everything that happens on that lot will be on the database and will be searchable,” he says. “It captures data in one place without multiple databases and multiple redundancies.

“The land people will do the first part, but then as a customer comes along sales people will add information, then design people, then the site manager, then after move-in, warranty issues will be followed. We will have all the information for that lot at the touch of a keystroke.”

Beyond the advantage to the company of having all of this data centrally located, customers will be able to keep track of the house as well. For example, says Burrows, if a homeowner wants to repaint a room, but does not know what the original color was, s/he can ask Winchester Homes to look it up and give the customer the info s/he needs.

In all, Winchester Homes hopes to be the best provider of high-end homes in the Washington, DC, and Baltimore area, while simultaneously being the best value production home builder. As Burrows says, “We want to be the best at mass producing custom homes.”