Piedmont Housing Alliance (PHA) Logistics Process Improvement Implementing a Streamlined Logistics Process July 2010 Executive Summary Background — PHA needs to identify ways to make its project management functions more efficient so that the organization can sustain its level of performance and not lose value or credibility due to lack of improper execution in its retrofitting projects. The logistics process for the retrofitting of PHA’s rental properties is causing the organization to suffer unnecessary costs, time, and productivity. Ultimately, the organization is seeing the result of these inefficiencies in its project cycle times and break-even points. On average, the organization’s project cycle time is approximately 2 – 3 months beyond the completion point established during the planning process. Subsequently, the average break-even point is approximately $470K as opposed to the $350K - $400K range that the organization sets as its mark for optimal performance. Thus, the recommendations for the implementation of a streamlined logistics process take a holistic approach to addressing certain inefficiencies in the fulfillment of the retrofitting projects. Addressing Problems – A deployment flowchart and Ishikawa Diagram have been used to provide some transparency to the inefficiencies in the logistics process. As you will see, these problems cover four main areas: 1) procurement, 2) supply chain management, 3) customer service, and 4) marketing. These four components encompass all inefficiencies present in the fulfillment of the organization’s retrofitting projects. Thus, lean recommendations have been made to effectively mitigate these issues via a continuum of continuous process improvement steps. Lean Recommendations and Continued Process Improvement – Recommendation 1 involves performing a materials audit for the project to ensure that the budget allocates enough money to procure the right amounts of materials. Also, each set of materials gets allocated an extra 3% in the budget in order to account for defects, contractor mistakes, and potential stock outs. This recommendation concludes with establishing a 10% reorder point so that materials are always readily available and the project does not reach a point of inactivity. Recommendation 2 advises the organization to consolidate the number of suppliers used by bringing on project-specific contractors. Using accessibility-specific contractors and contractors who are certified by the Energy Star program will help the organization identify the most appropriate suppliers and eliminate the contractors who do not present a cost-effective scenario for PHA. The idea is to capitalize on the knowledge of specialty contractors who will know best-practices in choosing suppliers. This will effectively
eliminate project lag times and the knowledge gap experienced by contractors who are unfamiliar with PHA’s retrofitting needs. Recommendation 3 advises that pre-project and post-project marketing strategies be developed to improve the break-even point by getting the newly retrofitted apartment leased well within the 6-month post-project timeframe. The organization would like to have the majority of the apartments leased— reserved ahead of time— as the project is taking place. The post-project leasing activity should not be as time-intensive if the right marketing strategy is implemented at the inception of the project. Recommendation 4 basically advises that the property management team engage in ongoing communication with tenants. The tenants who live at these rental properties are having their daily routines interrupted by the project process. Thus, it is imperative that tenants be notified about the scope of the project, timeline, and its ultimate benefit to them. Without this communication, PHA will lose credibility in the community and it will make it that much harder to lease the new apartments; resulting in a steeper breakeven point.
7/19/2010
PHA
CREATING A LEAN LOGISTICS PROCESS
| Try Muller
Table of Contents
Problem Background ..............................................................................................3
Problem Identification ...........................................................................................4
Problem Scope .......................................................................................................7
Lean Recommendations .......................................................................................10
Projected Outcomes: Continuous Improvement .................................................11
Problem Background Piedmont Housing Alliance (PHA) is a private nonprofit organization that engages in community development initiatives. A major part of these initiatives is building affordable homes and housing units. The other major component of the organization’s work is purchasing rental properties, retrofitting them to be completely accessible, and subsequently managing the property. The logistics involved the project management of the purchase and retrofitting process has been a hindrance to the organization for quite some time.
From a public relations
perspective, the scope of the projects PHA engages in are impressive and very effective as models of well-executed community development initiatives.
Thus, they incite local
governments and other housing-related entities to perpetuate this thought process and identify new ways to provide more diverse housing opportunities. However, from an internal perspective PHA suffers unnecessary costs and often does not fulfill project objectives according to schedule. There is definitely a causal relationship between the logistics process involved in retrofitting the apartments and PHA’s performance. As a nonprofit organization, efficiency in the logistics process is critical to the financial vitality of organization. Only having access to limited resources requires that logistics be efficient such that projects are effective in their purpose to provide working capital to the organization and appeal to the future tenants. There are multiple inefficiencies in PHA’s retrofitting logistics process that ultimately reduce the organization’s ability to achieve target project cycle time and break-even point. Problem Identification We need to first understand the current process in order to see what impediments to performance PHA’s logistics are creating. Figure 1 is a deployment flowchart that shows how PHA goes about fulfilling the projects needs from budgeting to project completion. The notes
marked in red on the chart show what efficiencies are being experienced in the process. Thus, this will provide a strong basis for a continuous process improvement strategy. Subsequently, figures 2 and 3 put the dynamics of PHA’s logistics into context by showing how the organization adheres to its main performance standards. Figure 2 shows how PHA has FIGURE 1: Retrofitting project deployment flowchart Finance
Proj Mgmt
Suppliers
Establish budget
*Budget established without regard to materials and subsequent inventory uncertainties
Identify Contractor
Identify (3) Suppliers
S1: delivers
S2: delivers
Orders Materials
*contractors/suppliers not conducive to performance goals
S3: delivers
S1 delivers
* (15) Day wait time for materials
Building Contractor
Rec. Supplies
Project Activity
S2 delivers
S3 delivers
* (10) Day wait time for reordered materials Reorder period No activity
Rec. Supplies
Complete Project
*stock out, stoppage period until materials received
Prop. Mmgt Communicating project activities to tenants. Moving and replacing current tenants during renovation process. *poor communication; dissatisfied tenants
Postproject marketing
Leasing to 100% capacity
*6 months until 100% of new units leased
performed in achieving its goal of an approximate 6-month project cycle for its retrofitting projects that consist of renovating 55 units. As the figure shows, PHA has fallen short of achieving this performance standard by an average of 2.5 months.
The organization’s
achievement of its other performance standard is depicted in Figure 3. This graph shows PHA’s
average break-even point to be between 22 - 23 months out. This is inclusive of the 6-month time period property management is using to lease all new units. Ultimately, PHA’s performance would be optimized by a 19 – 20 month break-even period.
FIGURE 2: Project cycle times for similar rental property retrofitting projects (55 units)
Desired vs. Actual Project Cycle Time Desired Project Cycle Time
Actual Project Cycle Time
Project Cycle Time (months)
9
8 7 6 5 4 3 2 1 0
Combined with the deployment flow chart, these graphs depict a very unfavorable dynamic for PHA. The organization cannot afford to be inefficient in how their projects are executed. There must be a strategy for continued process improvement if the organization is to close the performance gaps that are posed by the project cycle time and break-even point.
FIGURE 3: Break-even analysis that includes the 6 month period allowed to reach 100% capacity 700000
Revenue in thousands
600000
Total Revenue Total Expense
Break even point
500000 400000 300000 200000
Desired Performance
100000 0
Post-project time (100% leased)
Problem Scope The following Ishikawa diagram will help with understanding the issues at hand. The diagram has been used to make the problem and contributing factors more transparent and shows the specific components of the logistics process that is hindering PHA’s performance. Looking at the diagram we can see that there are four major areas in the organization’s logistics process that need to be addressed: 1) Procurement, 2) Supply Chain Management, 3) Customer Service, and 4) marketing. The diagram will essentially help put the problem into context and provide some transparency as to the underlying issues in PHA’s logistics process.
FIGURE 4: IshiKawa Diagram - Problem Scope 1.Procurement
3.Customer Service Poor budgeting
Poor communication of project activity with tenants
No post-project follow-up
Poor inventory planning
PROBLEM: Inability to achieve project cycle and break-even goals Poor identification of suppliers/contractors
Insufficient pre-project marketing Too long to lease 100% of units (6 months)
Ordering from too many suppliers
No standards
Insufficient post- Project marketing
2.Supply Chain Management
4.Marketing
1. Procurement: poor inventory planning/budgeting
Budget dictates the amount of materials ordered instead of materials determining how money is to be allocated to that portion of the budget
Direct impact on inventory planning because all materials are insufficient amounts
Combined, these two issues cause unnecessary costs for replenishment and stoppage time
Implications
PHA loses money by using funds outside of budget
Project goes through periods of inactivity
Undue financial burdens push back break-even point/time
Project inactivity increases project cycle time and break-even time
2. Supply Chain Management
Order strategy – ordering from (3) different suppliers
Deliver materials at inconvenient times
Only one supplier carries multiple materials
Contractors knowledge of accessible modifications questionable
Often have to inquire as to regulations
Frequently unfamiliar with accessibility standards
No standards for identifying suppliers/building contractors
No explicit standards for all logistics activities
Implications
PHA loses a lot of money with unconsolidated supply sources
This will ultimately increase costs and push back break-even point
Unknowledgeable contractors increase project cycle time due to mistakes and lack of familiarity
Without holding the process to certain standards there will only ever be marginal improvement
3. Customer Service
Property management ineffective in communicating project activity with tenants
Tenants are unaware of timelines (when they need to move and when they will be replaced while renovation is taking place.
No follow-up conducted to ensure tenants have been adequately serviced
Implications
Nullifies the potential for grassroots marketing since tenants are dissatisfied with process
Public perspective has negative connotations
Difficult to leas property to full capacity which pushes back break-even point
4. Marketing
No pre-project marketing (pull strategy)
Insufficient post-project marketing (push strategy)
Public virtually unaware of new project
Implications
Very difficult to inform potential tenants and reach 100% capacity within 6-month period
Lack of incentives undervalue the project
Lack of pull/push strategy increases time to units leased at 100% and pushes back the break-even point.
It is clear that the aforementioned contributing factors really hinder the effectiveness of the logistics process to help PHA achieve its time targets and creates a more costly project than necessary. The causal relationship between the project cycle time and the break-even point make an explicit point: more time means more money. Thus, the current inefficiencies in the logistics process cause the project to be ineffective in achieving organizational goals.
Lean Recommendations The following recommendations will provide a continuum of process improvement that will effectively create a leaner logistics process and allow PHA to reach its project goals. Ultimately, the goal is to make this to make logistics process repeatable and replicable for all of PHA’s community development projects. As the steps to continuous process improvement evolve, earlier recommendations will be adapted or changed all together to accommodate the next step in the strategy.
Recommendation 1: o Perform a materials audit before assessing budget allocation so that materials are properly accounted for o Add 3% to the pre-established budget for materials from each supplier (3) = a 9% budget increase specifically for materials o The 9% budget increase for materials will take into consideration unforeseen occurrence, defects, and contractor mistakes o Establish a reorder point of (10%) for inventory
Recommendation 2: o Consolidate suppliers by contracting project-specific contractors who focus on our two main retrofitting areas:
Accessibility: Research and identify accessibility contractors who will subsequently be in charge of identifying the most cost-effective and efficient suppliers.
Energy Star: Research and identify contractors who are part of the Environmental Protection Agency’s (EPA) Energy Star program and
possess a Energy Star certification. Allow them to identify the most costeffective and efficient suppliers. 
Recommendation 3: o Create a pre-project marketing strategy to create awareness about the project and get people to sign leases ahead of time. o Create a post-project marketing strategy and ribbon cutting event that will help fill the vacant spots not filled by the pre-project strategy.

Recommendation 4: o Send out information to each one of the tenants at the property giving them the details of the project and continue this communication throughout the course of the project. o All tenants must be notified of the projected completion time and should receive further communication should the project need to extend beyond that point.
Projected Outcomes: Continuous Improvement It is important to remember that these recommendations are a continuum of continuous process improvements that will eventually lead to a lean logistics process. Each project should add one or more lean components to the logistics flow and PHA should see their costs reduce, project cycle times decrease, and break-even point move to a more optimal performance level. PHA’s main problem is that the logistics are not streamlined enough to even begin to address performance gaps. By allowing extra inventory for material issues and budgeting to fulfill the reorder point, the organization is reducing lag time and effectively decreasing cycle time. More importantly, PHA will be pursuing a natural quality assurance strategy by choosing contractors specific to the retrofitting project.
We see that that all recommendations are interrelated because they each address cost and time— the major drivers of project cycle time and break-even points. Thus, this shows that PHA cannot view components of the logistics process as independent from one another.
The
organization will begin to close its performance gaps if it can take steps to incorporating these new components into the logistics of the retrofitting process.
References Coyle, John J., Langley John C. Jr.,Gibson, Brian J., Novack, Robert A., Bardi, Edward J. (2008) Supply Chain Management: A Logistics Perspective. 8th edition. South-Western Cengage Learning Goff, S. (2007) Tight, Inflexible Deadlines: Scourge of Projects. Retrieved July 1, 2010 from http://www.asapm.org/asapmag/articles/PM_WorldView.pdf Klatch, W. (2005) Running a Supply Chain Project. Retrieved June 27, 2010 from http://www.projectperfect.com.au/downloads/Info/info_supply_chain.pdf Planning and Development Records. (2004) Piedmont Housing Alliance Planning and Development Records. (2005) Piedmont Housing Alliance Planning and Development Records. (2006) Piedmont Housing Alliance Planning and Development Records. (2007) Piedmont Housing Alliance Planning and Development Records. (2008) Piedmont Housing Alliance Planning and Development Records. (2009) Piedmont Housing Alliance