informs

Vol. 34, No. 6, NovemberDecember 2004, pp. 442450 issn 0092-2102 eissn 1526-551X 04 3406 0442

doi 10.1287/inte.1040.0108 2004 INFORMS

Quadrant Homes Applies Lean Concepts in a Project Environment

University of Washington Bothell, Campus Box 358533, 18115 Campus Way NE, Bothell, Washington 98011-8246, kab@u.washington.edu School of Business, University of Washington Seattle, Campus Box 353225, Seattle, Washington 98195, glennsch@u.washington.edu Schonberger & Associates, Inc., 177 107th Avenue NE, #2101, Bellevue, Washington 98004, sainc17@qwest.net Dennis and Associates, 1314 Lake Sammamish Parkway NE, Bellevue, Washington 98008, stephen.dennis@comcast.net

Karen A. Brown

Thomas G. Schmitt

Richard J. Schonberger Stephen Dennis

Quadrant Homes, a subsidiary of Weyerhaeuser Corporation, provides transferable lessons for applying lean-manufacturing concepts in project environments. The company has obtained impressive market and nancial results, using an even-ow, predictable scheduling model in which it starts six houses per day and nishes each one in exactly 54 days. Quadrant follows recognized lean principles, including (1) designing its value stream around customer needs, (2) balancing work so all stages ow evenly, (3) operating on the basis of customer pull, and (4) continuously improving. Quadrant makes the lean principles work in a project environment by (1) knowing what can be standardized and what must be customized, (2) carefully setting and consistently managing customer expectations, (3) aligning goals of all stakeholders, and (4) recognizing that variances will occur, and designing routines to handle them when they do. Key words : industries: real estate; production: scheduling, applications. History : This paper was refereed.

ean enterprise concepts have revolutionized performance in scores of organizations. Highly publicized success stories from Toyota, Harley Davidson, Hewlett Packard, Dell, Dana, Eaton, and others provide examples in manufacturing contexts. Increasingly, these concepts are being applied in services hospitals, fast food, insurance-claim processing, engineering change orders, and so forth (Ordonez 2000, Swank 2003). Many individuals who have studied operations management and management science point out that lean concepts are not new, in spite of the recent hype. About 100 years ago, Henry Ford borrowed lean process-ow ideas from the meat packing industry and enhanced them with principles from Frederick Taylor. In the 1950s, Eiji Toyoda gained insights from Fords assembly lines, as well as the stock replenishment systems at A&P supermarkets, turning them into the mother of all lean systems at Toyota. Along the way, foundational management science concepts, such as queuing theory, inventory theory, system dynamics, theory of constraints, six sigma,
442

and simulation have helped organizations to ne-tune their lean systems. During the past ve years, we have followed the lean evolution of a project-driven company, Quadrant Homes, a subsidiary of Weyerhaeuser Corporation, a Fortune 500 company. Through multiple site visits and interviews, coupled with access to company data, we compiled a history of the process and its outcomes. Quadrant contracts, starts, and closes six houses every day, following a 54-day mass customization approach. Balanced loads at every stage in the system are synchronized at the pace of six per day. Strong performance data testify to the success of the model.

Lean Principles
Womack et al. (1990) coined the term lean in The Machine that Changed the World and embellished it in Lean Thinking (Womack and Jones 2003). Their message codies some of the just in time (JIT) concepts previously described by Shingo (1981),

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443 model is described in Sunshine Builders, Inc. (Dooley and Skinner 1959), a classic Harvard Business School case, demonstrating that the ideas are not new.

Schonberger (1982, 1987), Hall (1983), Monden (1983), and others: (1) Focus the entire value stream, for each product or product family, on delivering value from the perspective and priorities of the end customer (that is, the customers value-weightings of time, cost, quality, performance, service, variety, and other factors). (2) Make value-creating stages ow. Eliminate waiting, downtime, scrap, rework, and other wastes. (3) Let the end customer pull the product through the value stream. Produce only what the customer wants, when the customer wants it. (4) Continuously improve the process. Many companies have begun to apply these ideas but slowly lose discipline, drifting back to their old ways (Schonberger 2002, Hyer and Brown 2003). In contrast, Quadrant has remained focused on the principles and adapted them to t the needs of a project environment.

Quadrants Journey
Quadrant began building houses and residential communities in the Seattle area in 1960. In its early years, it built between 150 and 200 houses annually, with revenues of $30 to $50 million per year. In 2003, Quadrant sold over 1,000 houses, producing over $250 million in revenue, turning an industry-leading prot margin, and producing a pretax return on investment (ROI) in the low 20s. Within its industry, the company is in the top percentile of net income as a percent of revenue. Based on unit volume, the 170-person company is now the number one homebuilder in its geographic market, with twice the sales of its next competitor (Table 1). Prior to 1996, Quadrant followed a build-to-stock strategy, constructing an inventory of speculative houses based on rough demand forecasts. Finished goods inventories of completed houses often sat unsold for several months. The companys nancial returns from residential sales were mediocre and inconsistent from 1980 to 1996. High inventory costs driven by unsold, completed houses, long lead times, and slowly turning building sites contributed to poor scal performance. Quadrant ofcials were concerned about Weyerhaeusers continued sponsorship and knew they had to change. In 1996, President Steve Dennis, Executive Vice President Peter Orser, and Operations Vice President Mark Gray sought a new business model to reinvigorate the company. Orser began to study the even-ow approach used by a successful Texas homebuilder, Rayco, which is now owned by Kaufman and Broad. Raycos vice president of operations, Jack Robinson, had spent years managing production facilities for
1996 Market share Customers who say they are willing to recommend Quadrant to a friend Customers who actually refer friends to Quadrant Net margin per home 1% 73% 8% 2% 2003 10%1 92%2 36%3 6%4

Lean Principles in Project Environments

People typically view projects as unique kinds of operations requiring special planning and scheduling tools. Consequently, they consider them exempt from principles associated with more routine operations. Network scheduling models, stochastic schedule analysis, critical chain, risk modeling, simulation, earned value, and other tools enable managers to plan, structure, and control unique endeavors. However, projects are not entirely unique; they display several overlaps with day-to-day operations. Adler et al. (1995), Goldratt (1998), Brucker et al. (1999), and Kanet and Sridharan (2000) and have recognized the parallels between scheduling routine work in job shops and scheduling project portfolios within enterprises. Schmitt and Faaland (forthcoming) demonstrated the applicability of assembly-line and job-shop-scheduling concepts to recurrent construction problems for rms producing large, expensive products, such as airplanes, houses, and ships. Organizations in high-technology industries are recognizing the value of codifying the routine aspects of projects while simultaneously allowing for exibility where it will add strategic value. For example, Austin and Devin (2003) emphasize how the appropriate balance between standardization and innovation can determine the success of projects in the software industry. They draw on metaphors from theatre productions, highlighting the universality of these concepts. Although project-driven companies with even-ow task schedules may be rare, increasing numbers of builders are applying a model developed by Rayco Homes in the late 1980s (Lurz 1999, 2003). A related

Table 1: Quadrant Homes performance improved after it adopted lean project management methods. Notes. Information about data sources is as follows: 1 Market share is based on new house permit data drawn from public records. 2 Data on customers willing to recommend Quadrant are drawn from a third party market research rmQuadrant contracts with this organization to survey all new house buyers in the region on a monthly basis, and Quadrant is not identied as the survey sponsor. 3 Data on actual referrals are drawn from forms buyers complete at the time of the rst meeting for selecting options. 4 Net margin data come from internal accounting records.

444 Frito-Lay and had transferred ideas from that setting. Quadrants top managers embraced the concepts they learned from Rayco, but used the model (Lurz 1999, 2003) as a stepping-stone to a more systematic and disciplined approach to even-ow home building.
Design element

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Lean benets Creates opportunities for standardization, for example, foundations Simplies operations Designs are applicable to multiple building sites and terrains Can prepour foundations without severely limiting options Can provide several room arrangement choices within a footprint template by rearranging nonload-bearing walls Suppliers can offer volume discounts Standardized, simplied construction methods save time and money Reduces ow time Reduces cost Improves conformance quality

Design footprints are limited in number

Designs do not include basements

Quadrants Lean System

In 1996, Quadrant executives commissioned a comprehensive study of market preferences. Through surveys of buyers and analysis of real estate sales records, they discovered a stable market niche not well served by other builders. Buyers in this category, typically purchasing their rst houses, wanted (1) as much space as they could get, (2) more choice in features (previously Quadrant made the choices), and (3) good value. These three needs became the dening objectives of Quadrants new strategy. Following the rst lean principle, Quadrant then began to design its value stream around the customer needs it had identied. Quadrant reconceptualized its designs to create houses with maximum interior space, subordinating less important features, such as replaces and cathedral ceilings. In addition, the company converted its business model from build-to-stock to build-to-order, giving customers choices but controlling their nature and extent to stay within the lean systems capacity to deliver on time. It engaged in a process-focused effort to drive out cost and waste, reduce ow times, and increase conformance quality. House Design Quadrants rst task was to develop designs for houses that satised needs in the target market segment and were easy to produce from a lean perspective. Quadrant asked subcontractors and suppliers for design ideas to improve ease of construction, reduce waste, reduce labor hours, and minimize risk of error (Table 2). Contrary to what one might expect, Quadrant now offers more designs than it did under the old business model. It limits the types of variety that complicate operations (for example, the number of footprints) and expands variety in areas that do not create inefciency or increase work times (for example, types of oor coverings). At rst, Quadrants architectural team worked at an unsustainable pace to rapidly expand the product line and ll gaps in the market mix. For the entire system to follow the even-ow philosophy, designers needed to develop a specic number of plans per month. Quadrant adopted this production-oriented model, improving the quality of work life for its architectural staff and eliminating feast-or-famine loads on the rest of the system. This attention to pacing and system balance supports the second lean principle, make value-creating stages ow.

Multiple designs within each footprint category and exterior design allow multiple room arrangements

Part commonality across designs and across price points (for example, limited window options, roof pitches, and column types) Seeks supplier feedback to continuously improve designs and constructability

Table 2: Quadrant uses home design elements to support its lean model. It attains lean objectives while offering a range of design options for customers.

Acquisition and Preparation of Building Sites Quadrants consumption of approximately 1,500 lots per year means that it must replenish its inventory with a like number at an even pace. Quadrants land team developed systems to integrate its work with sales projections, ensuring the availability of land in all 28 submarkets. The key is to obtain the land in high demand areas just in time, avoiding a buildup of land inventory that would tie up capital unnecessarily and violate the lean model. Instead of waiting for real estate brokers to push great buys in the next big community, Quadrant buys data on recent sales from local research rms. Michael Lorenz, who heads this effort, works with his team to nd areas where used-house transactions within Quadrants price range and square footage parameters have increased. Quadrant purchases proximal groups of 90100 lots. It denes each such cluster as a project, which normally sells out in about ve years. Quadrant is careful not to make block purchases that will cannibalize sales in its existing communities. The decision model is data driven and follows simple statistical procedures, supplemented with expert staff judgment. Setting up Community Sales Centers Under the old system, Quadrant treated each new community opening as a unique project. The most revered community-center managers heroically did battle with local jurisdictions and managed crises effectively. They followed no standard processes. Now teams follow a 40-item checklist of standard

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445 could add a third oor, or Could I have this one but with the living room wall bumped out six feet into the back yard? Quadrant employees are trained to respond with a gentle no and to explain that they can offer high value for the dollar because they limit some aspects of customization. They emphasize the available choices; for example, within a particular footprint a customer could choose to use part of the rst oor space for a third-car garage or for a family room. (Managing expectations seems to be ingrained in Quadrants culture.) Most customers who defect have requirements that would create schedule instabilities, lengthen lead times, and raise costs. By not serving them, Quadrant sustains its lean model. There are sufcient numbers of customers who do t the model. Once customers choose lots, house plans, and a few other major features, they sign contracts that include preliminary prices. However, within the parameters of the contract and price, they still must decide on some details. Selecting Options Customers next visit Quadrants 10,000 square foot showroom to view over 5,000 options. Examples of choice categories include wall covering, cabinets, carpeting, doors, windows, bathroom xtures, kitchen xtures, and appliances. Quadrant encourages customers to visit the showroom at least ve times before nalizing the detailed agreement and gives them 45 days in which to do so. The repeated visits increase the likelihood that customers will be satised with their choices. This is important because they cannot make changes after they nalize their contracts. Once customers select options, they meet with showroom specialists for two hours and sign selection documents. At rst the showroom did not attract a steady ow of customers. When Quadrant was starting three houses per day, on some showroom days it might sign contracts with 10 customers, and on others, only one.
Backlog

procedures, with columns for assigning responsibility, due dates, and progress. This practice is in keeping with standard work, a mainstay of the Toyota production system. The rst few items in the community-opening checklist are (1) place signage, (2) obtain architectural committee approval (if this is an existing development), (3) create homeowner association documents, (4) deliver sales trailer, (5) send mailings to target markets, and (6) match lots with appropriate home designs (some matches are not feasible, and it is helpful to know this ahead of time). Team members update the standard process regularly as they nd ways to improve it. Community teams remain intact, moving as one community is built out to another one just opening, allowing members to develop stable, consistent working relationships similar to those found in the most successful teams (Berman et al. 2002). Moreover, Quadrant paces openings to maintain an even ow, allowing community teams to move from one site to the next without multitasking across communities. (Goldratt 1998 identied multitasking as a serious deterrent to project success.) The Start of Customer Pull After Quadrant established the foundation for its new business model, it tackled the third lean principle: let the customer pull the product through the value stream. A lean system works best if demand is steady and predictable. Quadrants system ensures the necessary stability (Figure 1). Typically, Quadrant customers rst visit a community ofce and tour one or more model homes. Quadrant can screen visitors to nd those looking for the space-for-the-dollar value it offers. Those who like what they see can learn more about design options and visit building sites in the community. When initially viewing design options, customers may remark, I like design A but wonder if you

Customer visits model community to shop and determine fit with Quadrants value proposition.

Customer selects lot and plan, then signs contract.

Customer visits Quadrant showroom to make detailed selections and finalizes agreement. Contract may be amended to include higher priced options.

Customer obtains financing.

Quadrant builds the house in 54 days, following lean methods.

Contract is closed out and Quadrant is paid.

Figure 1: Customers follow a standard process in buying Quadrant houses. In general, all customers go through the same set of steps, in the same sequence, although they may differ in where they enter the system. For example, some customers might initially visit the showroom for a cursory look at the options, then decide to visit a model community.

446 On Saturdays or Sundays, 90 people might visit the showroom. The showroom, then, was not supporting the evenow model. Quadrant hired Brent Howard, formerly manager of a large radiology clinic, to manage the showroom and revise the scheduling system. First, he moved all nal appointments with signed customers to weekdays to separate them from the weekend chaos and to promote attentive service. (In support of this approach, Swank 2003 advocates segregating complexity for lean services.) Second, Howard ensured that the pace of nal appointments matched the pace of the even-ow model. At the current pace of six construction starts per day, the showroom schedules seven appointments per day. Scheduling a seventh customer may seem to exceed capacity, but a few customers defect or postpone, and Quadrant needs a backlog to support the lean model and continuing growth. A third innovation was to add a help desk at the entrance. The person stafng this desk answers quick questions and directs walk-in trafc, freeing specialists for their appointments. These and other changes helped the showroom to support the lean model by delivering an even ow of customers into the construction schedule. Gaining Approval for Financing and Signing the Contract Mortgage nancing, a critical factor in ensuring that Quadrant could close six houses every day, was initially outside its control. Lenders did not believe builders completion estimates: they knew from experience that builders were always optimistic and therefore assumed they had plenty of time. To eliminate delays in loan processing, the company vertically integrated its value chain: it established Quadrant Home Loans (QHL), in partnership with a major bank. Although customers are not required to choose QHL, over 75 percent do, helping Quadrant to maintain its even-ow process. Once customers lock in their selections, the order enters the system and cannot be changed. At times, this lack of exibility frustrates buyers, but it is essential for ensuring that production, once started, proceeds smoothly. To manage expectations, Quadrant uses several stages of conrmation leading up to the lock-in, ensuring that customers know they have a done deal. (The nality of the contract is equivalent to the schedule freezing Toyota uses to support regularity.) When buyers make design choices and arrange nancing, their houses become part of a small backlog, the size of which Quadrant regulates as a pacing mechanism. Using a modied rst-in rst-out system, it selects six buyers houses a day to become starts, 10 days in advance of their scheduled start dates. Via

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the Internet, it sends suppliers information on these starts, including the design and selected options. Subcontractors have time to order material, prefabricate components, and schedule crews. Many, in turn, have established even-ow partnerships with their own suppliers. Quadrant employs mixed-model sequencing; instead of scheduling batches of similar houses, it seeks a complementary mix based on workload elements. For example, Quadrant pairs large houses with small houses or fully loaded houses with those involving few extras. (This is similar to Toyotas heijunka practice, alternating different model types on its assembly line to balance workloads.)

Lean Value Chain Management Processes

Having established lean, customer-focused designs as the foundation, and customer-friendly ordering processes that reinforce its space-for-the-dollar value proposition, Quadrant established a complementary scheduling and control process. Quadrants Stringline Schedule Quadrants standardized processes have allowed it to use a simple scheduling method, called a stringline (Figure 2), which looks more like an assembly chart than a network diagram more typically seen in project settings. The tasks performed in each of the 54 days of throughput time are the same for every house. (To achieve an even ow, Quadrant used assemblyline balancing methods to distribute the work across the 54 days.) The rst ve days at the construction site proceed as follows: Day 1: Deliver lumber; install rst-oor joists. Day 2: Conduct under-oor inspection; frame garage walls. Day 3: Start rst-oor walls. Day 4: Finish rst-oor walls. Day 5: Install second-oor joists. Quadrant posts the stringline chart on the wall at corporate headquarters. It shows all houses in process, with standard routings. A string is tacked at the top on the current date, with a pencil tied to the bottom to keep it plumb (thus, the name stringline). By looking at the cells under the string, one sees what is happening on every house in the system that day. Many potential emulators have asked Quadrant for copies of the stringline schedule, thinking this is all they need to replicate the even-ow system. Quadrant is happy to hand over the copies, knowing that success comes not from the stringline itself, but from the underlying value chain and corporate discipline that support it.

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447
Tack

String

Tasks / Date

Deliver lumber, install firstfloor joists

19-Mar House 1, House 2, House 3, House 4, House 5, House 6

20-Mar House 7, House 8, House 9, House 10, House 11, House 12 House House House House House House 1, 2, 3, 4, 5, 6

21-Mar House 13, House 14, House 15, House 16, House 17, House 18 House House House House House House House House House House House House 7, 8, 9, 10, 11, 12 1, 2, 3, 4, 5, 6

22-Mar House 19, House 20, House 21, House 22, House 23, House 24 House House House House House House House House House House House House House House House House House House 13, 14, 15, 16, 17, 18 7, 8, 9, 10, 11, 12 1, 2, 3, 4, 5, 6

23-Mar House 25, House 26, House 27, House 28, House 29, House 30 House House House House House House House House House House House House House House House House House House House House House House House House 19, 20, 21, 22, 23, 24 13, 14, 15, 16, 17, 18 7, 8, 9, 10, 11, 12 1, 2, 3, 4, 5, 6

Under-floor inspection, frame garage walls

Start firstfloor walls

Finish firstfloor walls

Install secondfloor joists

Figure 2: This gure shows the rst ve days of Quadrants cascading stringline schedule. The current days date is marked with the string, weighted at the bottom with a pencil. Subcontractors and suppliers move each day to a new set of six houses, moving from left to right on the chart.

Quadrants stringline schedule has deep roots. It resembles Gantt progress charts, line of balance (LOB), and other visual tools that have been in use for several decades (Headon 1932). Gantt progress charts generally employ a moving line or similar indicator to show the advancing date and to-date progress. However, Gantt charts are used predominantly to schedule and control tasks and resources for a single entity, such as a subcontractor (Knod and Schonberger 2001, pp. 587588). In the 1950s, the defense industry developed the LOB technique to track contractors completions of tanks, planes, and so on (Uher 2003). Like the LOB progress chart, Quadrants stringline includes a downward stair-step line to show tasks ahead and behind schedule for the houses in production. Quadrants stringline shows to-date progress for multiple houses (unlike LOBs single-unit limitation) and for multiple contractors and resources, versus Gantts single-contractor orientation. The company implemented the lean system carefully, initially starting one house per day as it developed the interdependent complement of lean system elements. Over time, team members have found ways

to control the variances inevitable in a tightly coupled system. As of June 2004, Quadrant starts six houses on 19 out of the 20 weekdays in each fourweek month, allowing one weekday and weekends as buffers to account for bad weather and other delay factors. (These weekend buffers are similar to the endof-shift buffers Toyota uses.) Subcontractor Partnerships in the Value Chain With only 170 employees, Quadrant relies on outside subcontractors for labor and materials. Following lean and JIT principles, Quadrant has developed close partnerships with these suppliers, often singlesourcing for plumbing, framing, electrical work, and so forth. Subcontractors become loyal participants in the process by dening and performing steady, predictable, linear work. With lean-friendly designs, Quadrant and its suppliers can schedule to the hour. Paced assembly line ows occur at the construction site for all trades, and beforehand at supplier sites. Tasks for most options and house sizes require the same time for each skill type and crew, although a few need larger crews to hold their task times.

448 Like many manufacturers, Quadrant practices a design-for-assembly (DFA) approach; its architects consider simplicity and task-time requirements when they create new designs. Consequently, it seldom is necessary for site superintendents to use emergency solutions, such as crashing (adding resources to shorten task time), which are typical in most project environments. Quadrants collaboration with suppliers is exemplary for wood framing components. Under the old business model, Quadrant bought all wood products for delivery to a site on the rst day of construction. It then hired a framing crew to build the house on site. Framers, often standing in the rain, decided which pieces of wood to use where. Quality varied, and wood waste was high. In the new model, a single supplier, Woodinville Lumber (WL) supplies both labor and materials for framing. It prefabricates components, such as wall panels, along in-factory feeder lines within the 10-day window of advance notice, then marries them at construction sites. WL manufactures these subassemblies for companion houses and then stacks and loads them on its trucks according to the construction sequences at the job sites. Quadrant builds houses in pairs (nearby companions with complementary task requirements) so suppliers can use their crews efciently. Nine days after a WL crew starts a house, it nishes rough carpentry work and moves to the next site, making way for subsequent subcontractors. Quadrant engenders its suppliers loyalty by paying them once a week, unconditionally. When Quadrant identies a days starts 10 days in advance, WLs computer system pulls up Quadrants digitized plan, adds its own design details, and produces a bill of material and a panel plan for the shop oor. Computer-controlled saws with resource optimizing capabilities cut wood, and workers mark the materials for each wall section to guide assembly crews. WL recycles the little waste remaining. WL is about to further automate the wall-panel-framing process along a mechanically paced assembly line. To reduce ow times, WL continually asks what it can prefabricate in the controlled environment of its lumberyard factory rather than construct on site. In addition to wall panels, trusses, oor panels, and I-joists, WL prefabricates stair systems and front porch posts and is considering framing roof sections at its plant. It seeks improvements at construction sites as well. For example, it is experimenting with electric mobile tower cranes so it can join oor panels with wall panels and then hoist them into position. Quadrants Stringline Control Several times a day, Quadrant updates progress along the stringline on a master chart in computer memory. It tags behind-schedule tasks in red, although few

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tasks actually cause schedule delays. The product and process designs at Quadrant and its suppliers make control easy and routine. Quadrant builds some slack into each task and crew-size assignment to ease pressure on those doing the early construction tasks and provide enough oat in downstream tasks to allow recovery from early delays. For the few tasks requiring intervention, perhaps because materials or inspectors do not arrive on time, Quadrant and its suppliers follow these priorities: (1) First, they consider technological solutions. For example, they may apply temporary heat to cure dry wall mud quickly. (2) Second, individual trades will work on weekends or holidays to get back on schedule. (3) Third, Quadrant may call for overtime on weekdays. (4) Fourth, Quadrant or its suppliers will send more people to nish a task, drawing them from a central labor pool or a crew on a companion house. As a last resort, they may send supercrews that specialize (for example, oors, walls, roofs) to get a house back on schedule. Quadrant does not sacrice quality to meet schedules; suppliers must consistently meet Quadrants quality standards or risk being replaced. Suppliers do not want to jeopardize their steady paychecks, a rarity in the construction industry. A 6.8 Richter-scale earthquake in 2001 tested the quality of Quadrant designs and construction: no Quadrant-built houses were damaged. The Results of the Lean Value Chain Quadrant has obtained remarkable benets from its new business model and even-ow systemmost notably, greatly increased prots. By transforming its operating processes, Quadrant has leveraged its growth in market share effectively (Table 3). Quadrant also has reduced its supply chain and production costs: It has improved labor efciency. The house is ready when subcontractors arrive, and those from different trades do not work on top of each other. Repetition has produced learning-curve advantages. It has improved inventory management. With its make-to-order model, Quadrant needs no speculative inventory. The 54-day schedule reduces work in process. Suppliers have enough information to anticipate needs and carry JIT inventory levels. They often ship directly to building sites, eliminating warehouse and handling expenses. With predictable volume, Quadrant and its suppliers can negotiate blanket (open-ended) orders and volume discounts condently. It has improved safety. Crews that perform the same tasks repeatedly establish safe work practices.

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449 to Operations Vice President Mark Gray, it will have to deepen its managerial hierarchy: managers who previously had direct control over project functions will supervise others who carry out this work. All three of these changes could compromise Quadrants lean discipline and control. If Quadrant reduces the 54-day ow time, schedule compression that increases the number of work shifts and parallel activities will increase complexity. This could strain the fundamental simplicity of the serial ow. Lean systems are characterized as tightly coupled, which creates high risk because of potential domino effects when something goes wrong (Perrow 1984). The more Quadrant pushes these interdependencies, the higher the risk. Opportunities Other aspects of lean manufacturing could enhance and solidify the gains Quadrant has made, and they could be particularly valuable as it grows. One example is 5-S (from ve Japanese words: seiri (eliminate clutter), seiton (orderly storage), seiketsu (neatness, cleanliness), seiso (clean equipment), shitsuke (discipline)) (Hirano 1996), a system for creating order and discipline in the workplace. The work sites are already extremely clean and orderly because the even-ow system prevents out-of-phase deliveries that stack up haphazardly. A formal 5-S effort, with regular housekeeping audits, could eliminate remaining clutter and discourage workers bad habits. A 5-S system would naturally lead to fail-safe devices and procedures that enable workers to catch and immediately correct their errors. For example, well-designed storage boxes could make it nearly impossible for workers to forget the tools necessary at job sites. Two other examples concern supplier payment. Although Quadrant uses an automatic, no-invoice system for paying suppliers, it still issues paper checks. It plans to change to electronic funds transfer to eliminate batch processing and paperwork in the ofce. As part of an unfolding IT (information technology) strategy, Quadrant is considering transforming the system of weekly supplier payments to JIT payments. One option would be a variation of the pay-on-scan system retailers are adopting (Boorstin 2003). In Quadrants case, on-site workers could use hand-held electronic scanning devices to sign off on jobs, triggering an electronic transfer payment to the suppliers bank account. In addition, heijunka load leveling could reach deeper into the supply chain than it does now. Woodinville Lumber has not extended JIT practices to its suppliers, the various mills located nearby in Washington, Oregon, and British Columbia. To maintain perceived economies of scale, these mills typically produce stock-keeping units (SKUs) in batches

1996Before lean transformation Houses built per year Construction throughput time Work in process Typical nished goods inventory Demand backlog for houses not yet started Average cost per square foot 150-200 135 days with wide variation 75 houses 20-25 houses 0 customers waiting $60

2003After lean transformation 1,500 54 days with little variation 324 houses 0 houses 550 customers waiting $30

Table 3: Quadrants operating performance has improved on several dimensions. Quadrant has increased its volume under the new business model, but it has proportionately reduced the amount of work-inprocess inventory necessary to support production. The make-to-order strategy has eliminated nished goods inventory. A customer backlog enables Quadrant to maintain the even-ow process because it allows the company to select a set number of construction starts to enter the system each day. Note on cost per square foot: Quadrant was in a different market in 1996, so we have used a comparison gure here representing the typical cost per square foot in Quadrants 2004 market segment.

Skeptics thought Quadrants even-ow model would not work. They thought that subcontractors would not stick with the schedules and that inspection delays would impede progress. What about suppliers who tend to overpromise and underdeliver? Could subcontractors count on those responsible for preceding stages to nish on time? They asked valid questions, but Quadrant demonstrated that it could align the goals of all stakeholders. Even the city and county inspectors cooperate; they know that, for example, the plumbing they are scheduled to inspect will be completed. The even-ow schedule allows them to schedule their Quadrant work with regularity and certainty. Quadrant has been recognized for exemplary human resource practices. In 2004, the company was named the best medium-sized Washington State employer by Washington CEO magazine (Williams 2004), demonstrating that lean operations are indeed employee-friendly. Potential Challenges Quadrants business model has yet to be tested on a large scale. Up to a certain point, Quadrants plans for growth probably will advance the companys lean practices by leveraging economies of scale and smoothing out resource demands. However, beyond some tipping point, growth may dilute the systems effectiveness. To reach its near-term goal of 10 starts per day, Quadrant will have to expand geographically to communities beyond easy driving distance. Moreover, some of its family-owned suppliers will be unable to accommodate the increased demand, ending Quadrants reliance on single-sourcing. According

450 covering the annual estimated requirements of their lumberyard customers. Many manufacturers, however, have countered arguments about economies of scale by protably extending JIT practices throughout their supply chains. This strategy holds potential for Quadrant as well.

Brown et al.: Quadrant Homes Applies Lean Concepts

Interfaces 34(6), pp. 442450, 2004 INFORMS

Conclusion
Quadrant has deployed lean principles in a project environment. We believe that rms in a variety of industries can follow its lead in applying this complementary set. Many project-oriented organizations take pride in providing customized products to unpredictable customers, burdening their operations with complex processes and high levels of uncertainty. They may be wise to examine Quadrants model and ask whether a large pool of customers could be satised with reduced variety in some areas in exchange for greater value for the money. If they nd ways to offer choices without compromising the operating system, they should be able to apply lean principles in project environments. Projects are not necessarily unique: many have common features that t well with lean applications. The challenge is to think outside the box and avoid reinventing the wheel for every new project or customer. Acknowledgment
We extend special thanks to Linda Sprague for her insights on stringline scheduling and her historical perspective on the model presented here.

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