How Manufacturers & Dealers Can Make the Move Into Prefab | Ep. 204

I think genuinely the marketplace is Shifting and it's becoming more well adopted welcome to the smarter building materials marketing podcast helping you find better ways to grow leads sales and outperform your competition alright everyone welcome to another episode of smarter building materials marketing where we believe your online presence should be your best salesperson my name is bethpop mukolov I'm your host and in the studio today we have someone to talk to us about one of my very favorite subjects we are going deep on prefab construction I'm really excited to welcome Scott Meyer he is the Chief Operating Officer of Integrity building products and has some really cool stuff to share with us today when it comes to prefab construction so first and foremost Scott thanks so much for your time welcome to the show thank you best to be here um I'm looking forward to the discussion discussion yeah us too so Scott let's Dive Right In tell us tell us a little bit about yourself and tell us about integrity Building Products I joined Integrity back in 2009 um as an operations manager um over the course of my tenure with Integrity we've dabbled in the expansion of the building products industry into Calgary um specifically uh prefab walls trusses floor systems and lumber supply our infancy was a typical retail lumber yard we've evolved to more of a business to business customer base um we primarily only service business to business which is um changed how we operate and allowed us to be a little bit more Innovative and creative I feel um so we're now 12 years into my tenure and we've gone from servicing Okotoks which is a small town just outside of Calgary Alberta um to servicing all of Southern Alberta and into the lower portions of DC we service approximately a dozen Builders but 2500 single family or multi-family homes or units per per year um in all Scopes that associate with Lumber or component manufacturing so tell us a little how does integrity Building Products come into the pre-fabricated wall construction Arena um we we kind of had a change in our in our culture so to speak um we didn't want to be just a lumber yard we didn't want to just be sticks and and fasteners um my brother and I who who Jerry founded the company um we built it on the premise of innovation it's one of our core values um and if we're going to ask our people to think like that we had to do that ourselves so we took a dive into prefab specifically about four years ago um I went on a trip to Germany with some much smarter and much more experienced individuals in component manufacturing and went on a tour that showed me what's possible that just really just Amplified how much work we have to do and how much opportunity is out in front of us to to evolve this space so really we look at it as an industry Improvement um and value that we can add to our clients and to our industry and form more of a legacy than than anything um so that that's where it started um so after that trip to Germany uh some obviously some market research and some discussions with some of our higher valued clients we made the commitment in 2019 to purchase a line uh built by Wyman um since that time we have expanded and we now have two women lines one operating in our original facility and one on on order soon to arrive for our second facility um that'll both support the Alberta primarily the Alberta Marketplace but we are seeing more traction at a BC as well um so that really really is the Innovative side um rather than just simply doing material takeoffs and sending six of the lumber um we decided that we would get a little bit more precise we would get a little bit more construction Savvy and intelligent with how we appropriate our materials um and and offer something different um I don't know if every Market is the same but ours is a very tight Marketplace um it is highly competitive if you are not doing something different you are going to be swallowed up by either larger providers or you are going to be ignored by some of the bigger builders that require it you can we all sell the same things you are going to be driven by Price or you're going to be driven by relationship so we decided to diversify a little bit um so we still offer six we still will if there's a traditional stick frame Builder out there the happiest happy to support and we'll work on conversion um into the prefab space at a later date when we have a little bit better handle on on their business um but yeah that was I was one of the primary goals of it was it was Again The Innovation side I I'm very passionate about it as silly as it may sound it's just cool um no it is it is um I love the tech side of it I I like the using software to improve both our business and The Business of our uh of our clients um I think that we again we have a long ways to go and we are just scratching the surface um but again you're starting to see the shift in in what people are willing to explore um one of the biggest strategies around it was customer retention because it is such a competitive market uh we do have to look at how it's not it's very difficult to replace some of these larger builders that do hundreds upon hundreds of homes annually so what we did did it for was a lot to make sure that we all own the larger share of their wallet but we're also more integrated with their business so that it was harder for them to move on now it isn't a manipulative strategy it is a security strategy um and and we get held to the task to ensure that what we're bringing is is truly valuable but um yeah I look at it in both a way to get in game business but to retain business so what does the conversation look like do you are you were you responding to demand in the market hey we're seeing that there's a growing demand for prefab wall panels or are you flipping Builders who come to you and with an order request and you say you know what I can actually save you time money labor by taking your order and doing it prefab when we first cracked into this uh back in 2019 when we when we first started I guess commercializing our wallpap we did a bit of a incubation and trial and error phase um but once we started actually selling it into the marketplace it was a um why don't you try this let's talk about this more um we we leveraged a couple of our relationships to give us an opportunity so I'll give you an example calbridge homes um is is a they're about a 200 a year Builder maybe 250 on a high year so not a massive volume but they're they're a custom builder in a sense so they're a custom production Builder which is kind of an oxymoron but they do a very good job about it um they actually took the first risk with us which basically they carved out a community of approximately 50 addresses annually where we would prototype this system where we would we would be giving the full gamut um to run with wall panel and they would trial it um that turned into a success story for them and now we're servicing for another six communities full-scope wall panel um the two other communities we have yet to service are just they're their most complex areas they're more estate level homes they're on the on an island on a lake things like that so very we're basically starting from the the simplest form and trying to evolve all the way to the most complex but they've they they went that route based on framer capacity so uh going back to 2019 it was not a they didn't need it they didn't want it they didn't ask for it we we made a pitch we showed them some small samples that might give them some Intrigue um and then really leverage the relation piece to allow us the chance once given the chance it was our responsibility and our goals to make sure that it was never given back um and we feel like we've done that effectively and then is spiral that through the covid surge in demand um that so calbridge did it based on we sold them on the method we sold them on the technology we sold them on the Innovation sold them on the efficiencies and then the The Surge of the last two years in demand has not only asked them to ask for more of it because they have less fields support but it's now starting to see the Intrigue from others now is it based on the fact that we've had success with calbridge perhaps there's a portion of that um but I think the general feeling and I I share the sentiment is skilled labor is not coming back yeah it's tight right now it is only going to get tighter um so we feel that we need to continue to push the envelope a little bit and we need to convert Builders more rapidly than we have in years past because they have to and if they don't there they will get left behind and you're you're seeing a lot more ironically I was driving downtown Calgary the other day and it was just something that I had never noticed or never maybe taken sight of and you see panels transporting much more regularly in Calgary than you did 12 months ago 18 months ago 24 months ago I think genuinely the marketplace is Shifting and it's becoming more well adopted I mean we so labor is obviously something we talk about on the show all the time and talk with other manufacturers about as well and I was reading an article in yesterday that said 91 of contractors had trouble filling labor positions on their workforces on their teams in 2022 so it's so fascinating for all of the benefits that we hear about prefab construction and I'm not shy about just being just a general fan being really interested in the technology and the potential there the you know often the benefits are you know cost Savings Time Savings labor savings has typically in the past kind of come at the bottom of those top three and to hear that a builder in your area which 200 250 homes it's not the biggest Builder but that's not the you know it's nothing to poke a stick at that's definitely a respectable mid-sized Builder to hear that it was like you know what we can probably get the same margins we don't we're not really looking for more margin we know that prices are you know materials are going to waiver here and there but we feel that we've got the flexibility in our ultimate price point with our with our buyer in order to meet that demand we know that homeowners especially in 2023 have been so beaten down about Demand on the marketplace that time isn't really that big of a proponent and if you want a house and I tell you it's going to take you 18 months to get into that house you're going to say please and thank you and you're going to sign on the dotted line and no one's going to care but labor is the thing that is keeping us from having enough homes to meet demand and it's so interesting Scott that that was the Tipping Point for a builder in 2019 where it we were just at like the standard rate of Labor shortage being an issue not you know the exacerbated state where we are today and it it'll be interesting to watch how that moves up the rung of time money labor is probably would be labor many times so it's got all that to say you know before right before we started talking you and I were agreeing that when it comes to prefab and off-site construction once every couple of years it feels like it really comes on the radar and we think everybody who's interested in the field is like sitting on the edge of our seats we were all like this is it this is the moment that it's going to catch fire and for a number of reasons it just doesn't seem to and it kind of Teeters off and then it comes back on and comes back up you see this way this kind of ebb and flow of demand and interest I'd love to know from your perspective if you have any thoughts on why that is and why it hasn't really ever had that significant Snowball Effect that we want um so I think the wavering is is a little bit of trepidation or a lack of risk tolerance we'll see um I I know who's speaking from just conversations that I've had with some of our other clients that we haven't been able to convert it is a risk to them perceived risk that they they're going to put all their eggs in one basket they will bastardize pardon my friendships that's okay uh that they're framing uh Partners oh yeah um yeah I I think that one of our one of our biggest challenges with conversion was the fact that we weren't bringing collaborative framers along for the ride we were asking them to convert their framers to our methods um so you're going from uh and and again it's an older Marketplace of Labor that is traditionalists they they like their craft they've mastered their craft over a number of years change is never going to be something that's easy for them um so we were we were kind of fighting two fronts we were fighting the risk that the Builder was about to undertake and we're fighting the risk that we're presenting to the Frameworks that they were dying breed or going to lose an opportunity um I think that's one of the reasons why it maybe never caught on fully I I think the other part was and and this is again speaking specifically about maybe just Calgary or Southern Alberta is there hasn't been enough positive outcomes in in our space um whether people have tried it and failed or they've quit on it whether from A supplier side not just the Builder's side a lot of the instances that I've known have been basically that somebody has tried it they put their best foot forward but they've never been able to fully bridge the gap of what the capital investment is what the time investment and and adapting your business model to support it so you look at a company like ours it was challenging we went from a traditional lumber yard uh very arms length on the component manufacturing side fortunately we wouldn't have been able to do what we did without the Partnerships that we had with our clients that that bought in it simply wouldn't have happened both from a funding standpoint and from a trust and a Cadence that it creates it if you're going to do this you have to go all in you can't dip your toes in um so I again I think a lot of companies got washed out in that um I think one of the reasons why you're gonna see it stick possibly more now or at least maybe not at the same rate that it's increasing but at least a constant climb is simply that there is more success stories there's more validation to it but our Marketplace specifically and our supply chain is very tight um so we have a good relationship with our competitors some of the other guys that have tried this they've had successes so their customers are feeling that positive we've had successes so we're starting to create a model that other builders can take off of what is the imitation is best form of flattery that sort of mentality is other builders want to see others take the risk and then they will then decide whether or not they're going to make a strategic decision themselves um so I think there's a lot more of those examples that we can use to leverage the conversations that we're going to have later on with other potentials so it's got based on everything that you're saying what predictions do you have about the adoption of prefabrication over the next three to five years um broad question um well I think I I again you're going to get pinched on a number a number of friends that are going to force some hands um one of those is going to be the fact that labor is going to continue to be a problem and demand is going to continue to be high now I know uh interest rates whether Canada or us are extremely high there there's a lot of noise around the fact that that's going to suppress a single-family Marketplace whether I I would assume it's very similar for you guys down in the U.S I think that Calgary specifically isn't a unique position because we're still underpriced in comparison to other major cities whether it's across Canada or the northern U.S um so I think Calgary has a long Runway of continued demand it might not meet what it meant you know at the beginning of 2022 where we saw a numbers that I don't think anybody predicted we would see um but I do think that we're going to continue to see an increase climb we are underpriced and we are under inventory dramatically Alberta had the largest single year of immigration into our Province since the early 80s there's no signs of that closing down we have a we have a government right now that is really incentivizing immigration to Canada uh we're looking at I think it's half a million people by the end of 2025 which for Canada is a lot yeah I feel like I saw somewhere that Canada had the highest immigration rate of any country last year and like is even developing a backlash and we we see that we feel that now um so I whether that goes into a maybe it's a price point thing where because again multi-family is much more adapted to the Prefab game than the single family side so you're talking about a Marketplace that is going to have a demand for probably more multi-family you're talking the entry level lower income homes things like that um on this single family side I think what we'll see in Calgary is just strictly that Builders are going to look to try to shorten the build cycle as much as they can they they went through a period of time the last two years where it it could have cost them their business um with surging pricing so the longer the window of time is that a home is under construction the more risk that you have we're going to continue to leverage technology and Innovation and efficiencies and precision that's going to be the obvious so um I think now coming out of the what we've just experienced over the last two years people aren't going to be simply disgraded on price and can you get it there when you eat it there it's going to be price of course but it's going to be can you get it there when I need it there as precise as I need it to be and with limited risk to my efficiencies or my ability to control my costs um one thing that we do and this is something that I suggest everybody that does a blended model is what we call it we consider ourselves a blended model we have stick frame and we have prefab we use what we call variance purchase orders to to quantify how much more efficient from a budget standpoint a wall panel job is versus a stick frame so you look at it right now we average five to seven percent on variance purchase orders which is basically the field calling us for more stuff you look at prefab because again we are controlling the products going into the home we are precise we are Precision we we have 3D model modeled it to a sixteenth of an inch the way that it is designed and the walls that we send for that design unless we have an error in production which again doesn't impact the Builder's budget it might impact their constructability or whatever um but the reality is we have sent you exactly what you need to build that house there should be no cost over a run and it should be fixed um and that we use that immensely can I ask you a question about that first of all it's fascinating that you measure that and if if I just hear you say like the difference out loud like one percent versus let's say at the top end six percent seven percent like statistically I know that that's pretty significant but if I just like the difference between one percent and six percent in my mind could maybe not be that much do you have any additional data like do you know how much from like a time or dollar standpoint that's six or seven percent Gap is that would change so when at all time commodity highs it's very high uh but let's say uh um what would be a good example um so we we do Consolidated variance purchase order so at the end of the project we submit for all of our variances at the end it gives the Builder a chance to analyze all the information and gather their thoughts we have to validate why we were either short on estimate or misappropriated materials or whatever um recently submitted one that was seven thousand dollars on probably a hundred and hundred and five hundred and two thousand dollar package sale that didn't include trusses so this is a very large Lumber package it's a it's an estate home so a true seven percent seven thousand dollars that they didn't budget for right no again just speaking of this specific example they made a choice through construction again stayed home walk out backing onto a lake yeah they made a decision based on the needs of their clients to improve some of the materials that were going into that house so it wasn't the misappropriation of materials it wasn't the missed on the estimating side it wasn't the framer cut something wrong on site it was a decision that was made so but those things all contribute now in hindsight if that was a prefab house that would have been a much different Challenge and that's one thing that you lose on prefab is being Nimble and being able to be dynamic and make changes throughout the course of the build of the house so you have to be very diligent in your fighting so Scott if I'm a manufacturer or a lumber dealer considering investing more or getting behind prefabrication in some way what advice would you have the software that we use is is provide as an output um we use my text in almost every aspect of our business obviously one of the most pronounced and used softwares in in the world but we use it for its intended purposes uh we we use it all the way through we use it for management we use infrastructure we use it for production we build our business based on the resources that are available to us in my tech in a lot of ways but we we ask our customers to engage in that so we ask our customers to provide us with AutoCAD files that we're able to create 3D modeling out of we ask our customers to convert their process to adapt to ours to allow us to give them the best output um so I would suggest that they prefab is not for the faint of heart if you're not prepared to put in the light work and pre-construction if you're not going to do the legwork on the pre-construction side you will fail the other piece of that is we we dedicate one specific employee that is basically out there demand planning and what I I don't mean from a supply chain side I mean from a field side they travel the greater Metropolis of where we service and they go around and they analyze site Readiness because the last thing that we could do especially in the last couple of years is dedicate a bunch of resources to something that wasn't real we we did not have that luxury to sit on a pre-made 3000 square foot home well Scott this has been so great I just want to say thank you so much for your time if any of our listeners wanted to get in touch or reach out what would be the best way for them to do that um you can reach me at my email my cell phone I'm a very I'm active I love what we do I love this industry I love the Innovation that we're starting to see and I'm going to try to be a part of the cultivation of that reach me on my email it's scott.mmat integritybuilt.com you can reach us on our social side we do have a Twitter account an Instagram account and that'll be integrity building that Integrity Building Products um or give me a call um my number is going to be on our website under uh about us I'm I'm again I am very passionate and that's one of the things if you're don't as much as you have to don't worry about the profits if you think that the idea has legs and you're passionate about the idea I I truly believe you'll find a way to convince others of the same um and that's really what we did over the last three or four years here is really try to exude our passion and our commitment to The Innovation and the Improvement of the industry upon our clients and we're blessed to have clients that trust us I love that I love that a ton well thank you again for your time and for our listeners if you want more great content like this head to venvio.com podcast until next time I'm bethpop Nicola thanks everyone [Music] thank you