Seeing Projects as Products

Mark L. Johnson / August 2019

A new report from McKinsey & Company says that modular construction (or prefabrication) can deliver projects 50 percent faster, has the potential to cut costs by 20 percent, and will change the business models of every player in the built environment, including wall and ceiling contractors.
    
“There are strong signs of what could be a genuine broad-scale disruption in the making,” says the report, “Modular Construction: From Projects to Products.”
    
Will you sit back and watch this disruption, or will you participate in it?

Manufacturing-style Production
That’s not an easy question to answer, and please don’t act hastily in this area. You’re a contractor, and becoming a manufacturer is no easy switch. It involves completely different mindsets and skillsets.
    
My advice is first to read the new report coming soon from the Foundation of the Wall and Ceiling Industry, “Prefabrication in the Walls and Ceilings Industry—Trends, Strategies, Outlook and Recommendations,” which is complimentary to AWCI members.
    
But since not all readers of this column have complimentary access to Foundation reports, let’s see what McKinsey has to say.
    
“There is an opportunity for … shifting many aspects of building activity away from traditional on-site projects to off-site manufacturing-style production,” McKinsey writes.
    
Here’s what must first take place before modular construction gains traction:
    
First, all construction players must adopt the use of materials and technologies that enhance design variability, improve manufacturing precision and facilitate logistics.
    
Then, the reputation that prefabricated structures are ugly, cheap and poor-quality has to be thoroughly squashed.
    
Finally, developers must launch projects that have scale and that offer design and assembly repeatability.
    
When these things happen, modular construction will grow rapidly. I didn’t see growth rates mentioned in McKinsey’s report. But, new modular building in United State and Europe could reach $130 billion by 2030 and deliver cost savings of $22 billion each year, McKinsey says.

Great Speed, Fewer Man-Hours
Here’s why modular and prefabrication methods are hot right now:
    
Project schedules can be condensed. “Manufacturing can take place in parallel with foundation work,” McKinsey writes. “Recent modular projects have already established a solid track record of accelerating project timelines by 20 to 50 percent,” the report says.
    
The offsite manufacturing of 2D panels and 3D volumetric units occurs much faster than on-site building. Work in an “enclosed and controlled factory,” McKinsey writes, offers “the ability to coordinate and repeat activities.” Modular delivery is laying claim to making an improvement in quality control.

Margins, GCs at Risk?
However, modular construction may cut into your profit margins by integrating the various construction trades.
    
Assembly tasks that would normally fall to different trade disciplines in the field can be truncated and doled out more efficiently in the factory. Specialization “remove[s] the need for subcontractors and the margins that they include in their quotes,” McKinsey says. Did you catch that?
    
But, there’s more. General contractors “are at risk of being cut out of a value chain focused on simple module assembly with high cost and schedule certainty,” McKinsey writes. The GC model “could become obsolete if modules and better BIM models improve planning and lower risk,” the report.

Questions to Think About
So, how can you ride the modular construction wave?
    
One, you can concede certain niches to modular builders—campus dorms, hotels, affordable housing. “The projects that are most likely to deliver the greatest cost savings,” McKinsey says, “are those that have the highest proportion of labor-intensive activities and the greatest levels of repeatability.”
    
Two, you can focus on custom projects—high-end apartments and office buildings that demand more on-site work. “Custom projects will not disappear even in a more modular world,” the McKinsey report says.
    
Three, you can partner with modular suppliers. McKinsey says subcontractors will need to “aggressively make use of modules to gain margin advantages over competitors.”
    
There’s a lot to think about. But it comes down to this: Will you support modular builders? Ignore them? Or, become one yourself?

Mark L. Johnson, an industry writer, can be reached at linkedin.com/in/markjohnsoncommunications.