Collingwood's Head of Building Products, Mark Goldsmith, often finds himself working in the North West with building materials manufacturers. This made attending the Explore Offsite North West on September 12th a straight forward decision.
Having previously met with conference chair, Darren Richards – MD of leading offsite manufacturing experts Cogent Consulting, Mark sat down with him again to discuss the current trends, hot spots and challenges in the offsite market.
Mark: It’s been a while since we have spoken Darren. You’re as best placed as anyone to comment on how the world of offsite manufacturing has gained traction over the past eight months. As Managing Director of Cogent Consulting and since our last Q&A of February 2017, how have you seen the market progressing in broadest terms?
Darren: The offsite manufacturing sector is an exciting place to be! We are seeing more inward investment in the sector than I have witnessed in my 25 years working within the offsite arena. This investment is in acquisitions of existing players but primarily in the introduction of new entrants and disruptors to the space which is making some of the mature and long-established offsite manufacturing businesses sit up and take notice! The levels of confidence in the sector in respect of the long-term viability of offsite technology is greater than previously witnessed and is underpinned by the consistent and now joined up messages from Government (with policies for procuring in favour of offsite technology and being held to account by the recent House of Lords Select Committee Report) and the rapid emergence of new private sector investments, especially in the housing sector and most notably within the Build to Rent (BtR) sector. Many operators within the BtR sector have vertically integrated models and can realise the true benefits of design for manufacture and assembly (DfMA). This is the most dynamic that I have seen this sector, and with meteoric rises in market share and demand exceeding capacity in many areas it is a great place to be.
Mark: In our previous Q&A you highlighted the challenge for the offsite sector was to “get a decent foothold in the traditional construction market and to ensure that manufacturing volumes hit such levels that mean it is no longer cost competitive to go back to ‘traditional’ construction methods”. Speaking with leaders of offsite firms and reading commentary from the market, this wider acceptance would seem to be an ongoing challenge. What is your take on this, a year on?
Darren: Wider acceptance of offsite construction techniques will always be an ongoing challenge and the sector cannot afford to become complacent. That said, the latest Cogent market statistics that we review on a half-yearly basis indicate that offsite technology now has around a 12% share of total construction activity in the UK – which is a rise from circa 8% back as recently as 2015. Whilst this figure is a long way from the true potential of the sector and still significantly short of the declared 20-25% offsite construction activity that many of our contractor and developer clients are seeking, it is most certainly heading in the right direction. Naturally, offsite technology penetration varies in different markets but if we look at say structural timber technology and its success in the low-rise residential sector, a market share of circa 30% can be measured and the recent ‘Timber and Masonry cost comparisons’ undertaken independently by RLB, show that cost parity is being routinely delivered and in some instance, where DfMA has been truly embraced - timber frame as a build method is proving to be more cost effective than masonry methods. This equation is likely to continue to develop further in favour of offsite technologies as the traditional industry skills crisis begins to harden in parallel to greater offsite manufacturing volumes and significant economies of scale. I do believe that with mature offsite technologies we are now genuinely at a tipping point and a point of no return, where certain traditional construction methods will be eroded and eventually eliminated.
Mark: A lot is being commentated on about larger construction firms integrating offsite technologies into their projects (Balfour Beatty, London Housing Consortium by way of examples). Are you finding more of the bigger tier one contractors and developers are seriously adopting offsite technologies?
Darren: With notable exceptions such Laing O’Rourke, who have genuinely pioneered in the offsite space and put their money where the mouth is, Mace with their ‘jump factory’ experiment and more recently significant ‘declarations of intent’ by the likes of Balfour Beatty with their ‘25% by 2025’ strategy (25% offsite activity by 2025), I would say that many of the large contractors have not yet truly embraced offsite manufacturing to realise its full potential. The recent uptake has been driven much more by medium-size contractors and by clients themselves who have been able to manage the entire end-to-end construction process and influence DfMA, standardisation, technology selection and project/cost management from a ‘bigger picture’ perspective. That is, those who see the long-term opportunity in not just experimenting with offsite techniques on one-off projects but those that see longer term benefits and, in some instances - the inevitability that the construction sector will change, so they are starting the journey early! A number of significant procurement frameworks in the education sector and in the affordable housing sector have also had quite an impact on changing the way offsite solutions are procured – in many instances with clients leaning heavily on the framework selection process to narrow down their technology and supplier options, thereby giving them more confidence to make the change. To your final point in respect of developers – yes in recent times we have seen developers becoming more engaged in leveraging innovation within their supply-chain, leaning on the contractors or in some instances bypassing contractors and choosing to work on a ‘turnkey’ basis with the offsite supply-chain, many of whom have expanded their service offering to accommodate a total delivery package.
Mark: And do you feel that manufacturers within the space are taking advantage of the opportunities presenting themselves in affordable housing and modular construction for schools, hospitals etc? What key areas do you feel they are still missing a trick on?
Darren: Most of the offsite manufacturing clients that we have (and that is a lot across all offsite technologies) are stacked out with work and so you would estimate that they are taking advantage of the opportunities presented. That said, many are finding it challenging to fund the growth and to access the working capital required to cash-flow some of the major projects that are presented as opportunities in the market place. It is a really tricky balance to find – the balance between growth and over-extension – and many of the established offsite manufacturers are taking a sensibly cautious approach to the projects that they are chasing and taking on. Capacity and skills within the offsite manufacturing sector will become a constraint in the not too distant future and so the offsite manufacturers will need to keep investing and to do this they will need to be given the confidence that promised pipelines, will become reality. Many have been ‘bitten’ by false dawns and false promises in the past, where potential pipelines remained just that (potential) and so they are rightly nervous about over-extending. This is a long-term transformation of the construction sector and our view is that the opportunities will not disappear, so a sensible but accelerated approach is right for now – we’re now at a fast walking pace and just about ready to start jogging! If the offsite manufacturing sector is ‘missing a trick’ in any way at the moment it is actually likely to be that they are not collaborating enough and as such, some major projects that could go offsite via multiple sources (reduced risk) are not being delivered due to clients taking a cautious approach to not putting all their eggs in one basket.
Mark: Fuelled by MPs via an Environmental Audit Committee paper last month there has been, less than complementary, noise around how modular homes withstand prolonged heatwaves. You are no doubt very well placed to add your thoughts around this subject Darren. What’s your view?
Darren: My view is that this is old news and a matter that has been consistently addressed by the myriad offsite technologies over the years. The offsite sector represents a broad spectrum of materials and technologies with both high thermal mass concrete and lower thermal mass, highly energy efficient timber, lightweight steel and hybrid manufactured building technologies. The most important design feature for comfort is effective cross ventilation and the size and location of glazing. As with traditional construction; good offsite design gives excellent mitigation of overheating. Poor design is equally detrimental to traditional and offsite solutions. Look back at the excellent work undertaken by the Zero Carbon Hub (ZCH) - thermal mass does not feature in the ZCH hierarchy but has a role to play in smoothing short-term peaks and troughs of temperature. However, in periods of sustained high overnight temperature, as our cities have experienced recently, it is insufficient on its own to prevent overheating. Academic research has contrasted comfort levels in lightweight and traditional housing. Both perform well with good cross ventilation, but a cooler upper floor in lightweight construction is an advantage for occupier comfort at night. The performance and durability of timber solutions are reinforced by the extensive use of naturally ventilated lightweight timber homes in North America. Similarly, there is no doubt of the durability of steel structures: robustly detailed modern offsite systems typically have a design life ambition of 100 years or more. For many years the offsite community has been keen to demonstrate its capability, resilience and user comfort on a level playing field with traditional construction, with the aim being to work in parallel and preferably partnership with traditional materials and construction methods; to provide the additional capacity and quality the sector needs. It was somewhat short sighted and perhaps ill-advised for the EAC to make the allegations it did without perhaps first consulting with the offsite sector and seeking out expert opinion from within it.
Mark: A lot of your work at Cogent Consulting revolves around setting up and driving efficiency improvements across offsite manufacturing plants. With the increased awareness of offsite and the commercial opportunities this presents, have you found manufacturing efficiencies being of more important over the past year or so? Are there any companies within the space you feel have adopted improvements well and, under your wing, how have they adopted these changes (by all means no names just size of facility etc)?
Darren: Clearly new offsite manufacturing entrants have the luxury of setting up advanced manufacturing facilities from day one and do not often have the historical burden of entrenched cultures or long-term fixed assets that were perhaps purchased in a different era, which is what the majority of the established offsite manufacturers have to contend with, so we don’t have a level playing field on which to make comparisons. All of our ‘new entrant’ clients have embraced world class manufacturing techniques and implemented integrated management systems, ERP solutions, BIM enabled design techniques etc. and it is totally gratifying to see that the sector is attracting this type and scale of investment. But I can count on my fingers and thumbs the numbers of companies that have entered the offsite manufacturing arena in this way and actually seen the light of day! Just as many have declared their intent and then never gone on to realise their ambitions. We currently receive half a dozen enquiries per month regarding new offsite manufacturing facilities and maybe one of these six will actually go on to achieve their ambition, as many are still struggling to raise the capital required. There are plenty of visionaries out there but not many of them have got deep pockets! As such, our focus is to concentrate of the established players within the offsite manufacturing sector – to help them to realise their full potential and to get more out of the assets that they have. Much of this activity involves the pursuit of lean manufacturing techniques and where appropriate, the mechanising or automating of key manufacturing processes that may historically have been manual processes. That said, in many instances we do not even have to go that far to realise a typical 15-20% increase in capacity that we often deliver. More often than not we are focusing on getting the basics of the manufacturing operation right – estimating methods, design control, cost reconciliation, workflow mapping, capacity planning, material requirement planning, pre-kitting, labour balancing etc. – much of which is not ‘rocket science’ but all of which requires a robust and well sequenced implementation plan (a Manufacturing Blueprint) and one that is cognisant of the needs of the business to continue to produce and to make money! It is not often (if ever) that a business can hit the pause button to be re-structured or reconfigured and so we find ourselves working in some pretty challenging environments!
This is what makes us tick – we love the challenge – and having done this type of activity for 25 years we can have complete empathy with the people that we are working with. After all, it is the people that run these businesses not the machines - yet!
DARREN RICHARDS, MD of Cogent Consulting