{"id":25606,"date":"2017-11-15T21:11:33","date_gmt":"2017-11-16T02:11:33","guid":{"rendered":"https:\/\/digital.hbs.edu\/platform-rctom\/submission\/building-a-digital-supply-chain-in-the-multifamily-building-industry\/"},"modified":"2017-11-15T21:11:33","modified_gmt":"2017-11-16T02:11:33","slug":"building-a-digital-supply-chain-in-the-building-industry","status":"publish","type":"hck-submission","link":"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/building-a-digital-supply-chain-in-the-building-industry\/","title":{"rendered":"Building a Digital Supply Chain in the Building Industry"},"content":{"rendered":"<p><strong>Setting the Stage for Modular Builders<\/strong><\/p>\n<p>The Great Recession had many strong and lasting effects on the construction industry and overall housing trends in the United States. Home ownership continues to decline, from its peak of 69% in 2004 to 63.4% in 2016, as risk-adverse millennials increasingly choose to rent rather than purchase a home [1].<\/p>\n<p>&nbsp;<\/p>\n<p><a href=\"https:\/\/d3.harvard.edu\/platform-rctom\/wp-content\/uploads\/sites\/4\/2017\/11\/pew-chart.jpg\"><img loading=\"lazy\" decoding=\"async\" class=\" wp-image-25590 aligncenter\" src=\"https:\/\/d3.harvard.edu\/platform-rctom\/wp-content\/uploads\/sites\/4\/2017\/11\/pew-chart-196x300.jpg\" alt=\"\" width=\"245\" height=\"375\" srcset=\"https:\/\/d3.harvard.edu\/platform-rctom\/wp-content\/uploads\/sites\/4\/2017\/11\/pew-chart-196x300.jpg 196w, https:\/\/d3.harvard.edu\/platform-rctom\/wp-content\/uploads\/sites\/4\/2017\/11\/pew-chart.jpg 308w\" sizes=\"auto, (max-width: 245px) 100vw, 245px\" \/><\/a><\/p>\n<p style=\"text-align: center\">Source: See End Note [1]<\/p>\n<p>Furthermore, according to a recent study commissioned by the National Multifamily Housing Council (NMHC) and National Apartment Association (NAA), a lack of sufficient post-recession multifamily development and general population growth have created the need for 4.6 million new apartments by 2030 [2]. As such, the need for quick and efficient multifamily construction has led many real estate developers to turn to modular construction to meet their project needs.<\/p>\n<p><strong>Cutting Wasted Time and Materials in a Traditionally Inefficient Industry<\/strong><\/p>\n<p>In an industry whose productivity gap costs the global economy $1.6 trillion per year (see exhibit below) [3], multifamily developers have turned to modular construction due to the various efficiencies that it offers during the construction process.<\/p>\n<p>&nbsp;<\/p>\n<p><a href=\"https:\/\/d3.harvard.edu\/platform-rctom\/wp-content\/uploads\/sites\/4\/2017\/11\/Chart.jpg\"><img loading=\"lazy\" decoding=\"async\" class=\" wp-image-25597 aligncenter\" src=\"https:\/\/d3.harvard.edu\/platform-rctom\/wp-content\/uploads\/sites\/4\/2017\/11\/Chart-300x265.jpg\" alt=\"\" width=\"355\" height=\"314\" srcset=\"https:\/\/d3.harvard.edu\/platform-rctom\/wp-content\/uploads\/sites\/4\/2017\/11\/Chart-300x265.jpg 300w, https:\/\/d3.harvard.edu\/platform-rctom\/wp-content\/uploads\/sites\/4\/2017\/11\/Chart-768x680.jpg 768w, https:\/\/d3.harvard.edu\/platform-rctom\/wp-content\/uploads\/sites\/4\/2017\/11\/Chart-600x531.jpg 600w, https:\/\/d3.harvard.edu\/platform-rctom\/wp-content\/uploads\/sites\/4\/2017\/11\/Chart.jpg 939w\" sizes=\"auto, (max-width: 355px) 100vw, 355px\" \/><\/a><\/p>\n<p style=\"text-align: center\">Source: See End Note [3]<\/p>\n<p>Modular construction typically involves building entire apartment units off-site, usually in an indoor factory, and shipping completed units by truck to the project site. Units are then fully assembled and attached together to form the overall structure. Major benefits of modular construction include [4]:<\/p>\n<ul>\n<li>Standardized construction processes, resulting in reduced raw material waste.<\/li>\n<li>An indoor (climate-controlled) construction environment, allowing for more precise and higher quality construction.<\/li>\n<li>Reduced labor costs, especially for projects in cities with high wages, as labor rates are often much lower at the factory locations where the units are built. Less subcontractors\/laborers are required, also reducing labor costs.<\/li>\n<li>Reduced construction time.<\/li>\n<\/ul>\n<p><strong>How Katerra Stays Ahead of the Curve in Modular Construction<\/strong><\/p>\n<p>Although modular construction\u2019s popularity has only recently gained steam in multifamily development, digitalization within the industry is increasing pressure on builders to look for competitive edges.<\/p>\n<p>Recently co-founded in 2015 by an ex-Flextronics CEO and with roots in Silicon Valley, Katerra is incorporating state-of-the-art technologies into the construction supply chain to exploit the rise in digitalization within the industry and differentiate itself from other modular builders. Katerra uses advanced SAP technology, a proprietary analytics platform, a mobile app, and industrial IOT tools (which incorporate machine learning and big data technology [5]) to optimize its design and construction processes, on-site communication, and tracking of raw materials and labor utilization [6].<\/p>\n<p>The use of these technologies has also allowed Katerra to create a standard \u201ckit\u201d of pre-designed components that can be used by developers as a foundation for their project designs and that can be combined into different configurations to meet specific project needs [7]. Having this level of standardization among a set of general components has allowed Katerra to take advantage of a highly advanced raw materials inventory tracking system to determine the optimal quantity and timing of raw materials that it should order [8]. By doing this, Katerra reduces material costs for its customers by both eliminating materials waste and creating economies of scale through placement of larger orders from its suppliers (as it combines the needs for common materials across multiple projects and different clients).<\/p>\n<p>To maintain its competitive position in the long term, Katerra is building new factories throughout the country and further investing in technologies that will help create a highly integrated and informed network of off-site construction locations in order to deliver products even more quickly to regionally-diversified clients [9].<\/p>\n<p><strong>What Katerra Should Keep in Mind for the Future<\/strong><\/p>\n<p>As Katerra continues to disrupt the construction industry by embracing digitalization, there are two important concerns it should bear in mind. In the short-term, Katerra must continue to expand its \u201ckit\u201d of premade components with sustainable\/environmentally-friendly materials in order to reach a wider range of developers with increasingly complex needs. In the long-term, Katerra can expect its competitors to incorporate many of its current cutting-edge technologies into their own construction processes. Accordingly, it is vital for Katerra to protect its technological innovations, where possible, through the use of patents and similar legal protections, which may not currently be common in the construction industry but that become increasingly important as Katerra blends its operations between the construction and high-tech industries.<\/p>\n<p><strong>Further Considerations<\/strong><\/p>\n<p>While digitalization within the modular construction industry is proving to be great for real estate developers, it is yet to be determined whether users will also see the same level of benefits. Will the increase in standardization in construction materials and design alienate consumers who seek aesthetic differentiation in their home? Can high degrees of digitalization in the construction process be applied to other property types beyond multifamily, such as industrial\/office\/medical that are much more complex in design and specifications?<\/p>\n<p>(Word Count: 783)<\/p>\n<p>&#8212;<\/p>\n<p>[1] Richard Fry and Anna Brown, \u201cIn a Recovering Market, Homeownership Rates Are Down Sharply for Blacks, Young Adults,\u201d Pew Research Center, December, 2016, http:\/\/www.pewsocialtrends.org\/2016\/12\/15\/in-a-recovering-market-homeownership-rates-are-down-sharply-for-blacks-young-adults\/#most-renters-would-like-to-buy-a-home-in-the-future-but-many-cite-finances-among-major-reasons-for-currently-renting, accessed November 2017.<\/p>\n<p>[2] Patrick Sisson, \u201cStudy: U.S. must add 4.6M new apartments by 2030 to meet rising demand,\u201d Curbed, June, 2017, https:\/\/www.curbed.com\/2017\/6\/12\/15785610\/rent-real-estate-apartment-construction-affordable-housing, accessed November 2017.<\/p>\n<p>[3] Filipe Barbosa et al., \u201cReinventing Construction: A Route to Higher Productivity,\u201d (February 2017), McKinsey Global Institute, https:\/\/www.mckinsey.com\/industries\/capital-projects-and-infrastructure\/our-insights\/reinventing-construction-through-a-productivity-revolution, accessed November 2017.<\/p>\n<p>[4] Ryan E. Smith &#8220;OFF-SITE AND MODULAR CONSTRUCTION EXPLAINED.&#8221; Whole Building Design Guide, August 9, 2016. https:\/\/www.wbdg.org\/resources\/site-and-modular-construction-explained, accessed November 2017.<\/p>\n<p>[5] Margaret Rouse, \u201cDefinition Industrial Internet of Things (IIoT),\u201d TechTarget, March, 2015, http:\/\/internetofthingsagenda.techtarget.com\/definition\/Industrial-Internet-of-Things-IIoT, accessed November 2017.<\/p>\n<p>[6] Katerra, \u201cOur Process,\u201d https:\/\/katerra.com\/en\/how-we-do-it\/process.html, accessed November 2017.<\/p>\n<p>[7] Ibid.<\/p>\n<p>[8] Ibid.<\/p>\n<p>[9] \u201cKaterra Announces New Mass Timber Facility,\u201d press release, September, 2017, on Katerra website, https:\/\/katerra.com\/en\/who-is-talking\/press\/2017\/press-releases\/CLT-Factory.html, accessed November 2017<\/p>\n","protected":false},"excerpt":{"rendered":"<p>While the construction industry has historically consisted of a very inefficient supply chain, some multifamily builders are embracing digitalization to take their operations to the next level.<\/p>\n","protected":false},"author":9740,"featured_media":25879,"comment_status":"open","ping_status":"closed","template":"","categories":[428,2123,3617],"class_list":["post-25606","hck-submission","type-hck-submission","status-publish","has-post-thumbnail","hentry","category-construction","category-digitalization","category-modular-housing","hck-taxonomy-organization-katerra","hck-taxonomy-industry-construction","hck-taxonomy-country-united-states"],"connected_submission_link":"https:\/\/d3.harvard.edu\/platform-rctom\/assignment\/rc-tom-challenge-2017\/","yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v27.3 - 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