The failure of L&G Modular is a real blow for offsite manufacturing, but there is an alternative model that makes more sense, says Chris Spiceley of Modulous
The regrettable demise of L&G Modular this month is going to shred confidence in this form of delivery. But, before we get into baby/bathwater analogies, let鈥檚 examine some of the underlying themes of this and other recent events.
Tracing back to Katerra three years ago, via other recent casualties in the UK and USA, there is a common theme: an asset-heavy approach. Asset-heavy in itself is not necessarily the issue, but in the context of our industry there is a sense of inevitably about the outcome.
>> Also read: Innovate with care: lessons to be learnt from collapse of Katerra
>> Also read: Modular without the factory: Modulous plans to turn offsite building on its head
Consider the fact that these firms are competing against traditional artisan build at lowest cost with low overhead and low profit margins. Add to this the fact that clients increasingly insist on turnkey approaches, meaning modular manufacturers are forced to take increasing delivery risk under traditional design and build contracts, managing works they are ill-equipped to manage and increasing their working capital exposure for smaller returns.
Then, in the residential sector, there is a continued belief that every apartment should be different which, when combined with a fragmented client demand profile, seldom results in a repeatable product, manufactured effectively.
The factories that embrace modular inevitably want to deliver higher percentages of pre-manufactured value by taking on more of the assembly process
Meanwhile risk is exacerbated by the logistics involved in labour and materials getting to single points of manufacture, and the costs of moving inefficient volume the length and breadth of our potholed highways.
The factories that embrace modular inevitably want to deliver higher percentages of PMV [pre-manufactured value] by taking on more of the assembly process to move beyond material supply. This enhances their profit margins and increases product volumes.
>> Also read: Why are we struggling to make modular work?
>> Also read: There is still just about time to modernise rather than die
However, this disincentivises main contractors from wanting to work with them as the shift of value to the supply chain means less control, higher risk and lower returns for themselves. And, if the factory fails, the stakes are that much higher for the client.
To address these shortfalls, many asset-heavy offsite manufacturers have resorted to buying housing sites to fill their factories and shift product while they await Damascene-like changes of minds on the part of clients both public and private. It is not sustainable.
An asset-light approach enables the utilisation of existing businesses to steadily build supply, demand and capacity alongside their existing manufacturing capacity
So, this latest failure is a real blow for offsite, which offers so much potential in terms of efficiency, quality control and scalability. It is essential that we learn lessons from it.
One obvious solution is to adopt an asset-light platform approach, using existing supply chains to deliver just-in-time kits of parts to assembly locations closer to delivery sites, all delivered under a comprehensive quality assurance process.
An asset-light approach enables the utilisation of existing businesses to steadily build supply, demand and capacity alongside their existing manufacturing capacity 鈥� that is, the key is to partner with well-run and audited businesses with proven resilience and integrity. Establishing contract manufacturing arrangements with such suppliers and manufacturers will enable offsite providers to scale appropriately.
How many local authorities prefer job creation in their postcodes, not in locations 150 miles from them? Presumably all of them
The beauty of the kit of parts approach 鈥� rather than volumetric solutions 鈥� is that the logistics involve flat-packed or at least more efficient material strategies, and local labour can be utilised in last-mile assembly locations or on-site. How many local authorities prefer job creation in their postcodes, not in locations 150 miles from them? Presumably all of them.
There are many commercial models that demonstrate to clients the necessity to engage earlier as the benefits are clearly recognisable: reduced overheads; massively decreased investment in time, training and cash necessary to establish an entity that withstands the increased due diligence and scrutiny from increasingly savvy clients; flexibility in the degree of PMV to suit client, contractor and project, by respecting but evolving proven delivery methods, and adjusting solutions to meet the desired goals.
>> Also read: L&G Modular鈥檚 closure shows there鈥檚 a limit to the patience of slow capital
Not every client wants fully fitted modules as they may wish to carry out second and final fixes onsite due to low labour costs and the desire to generate employment locally.
We call on the government, Homes England and Mark Farmer 鈥� author of the Farmer Review of the UK Construction Labour Model, famously subtitled 鈥淢odernise or Die鈥� 鈥� to champion the asset-light approach for its resilience, its scalability and its sheer common sense.
Chris Spiceley is client accounts director at Modulous
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