Operation Management

TechnologyOperation
Management Technology
Written Analysis of Case-Quadrant
HomesWritten Analysis of Case-Quadrant Homes

2/24/20192/24/2019

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Submitted to:
Syed Zahoor Hassan
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Quadrant Homes

Executive Summary

From 1996 to 2007, Quadrant Homes were well renowned home builders with a vision to supply
homes with speed and convenience to first- time home buyers. Their ability to build homes in 54
days, while maintaining qualityquality enabled them to maintain a competitive advantage in the
market. They operated on a lean model, seamlessly integrated with their suppliers, vendors,
customers and internal employees. Post 2007, the company had begun to rest on its laurels and
failed to adapt to changing customer needs of differentiation. This was exacerbated by the
financial crisis where the housing market collapsed. People did not have the ability to buy new
homes. The company went through difficult times till 2012, and this led to a complete overhaul
of the strategy, vision and focus for Quadrant Homes.

The Success of Quadrant Homes (1996 to 2007)

The operational strategy of Quadrant Homes was to compete on speed and cost (Exhibit 1) while
maintaining consistent quality. Their 54-day delivery time was the best in the market as
compared to the market standard of 90 days. days in the market. The competitors benchmarked
themselves to Quadrant Homes. They achieved this speed due to their seamless integration with
their suppliers, standardization of products and a sales team which shared the vision of the
company. Their target market was clearly defined: ‘first- time home buyers with income in the
range of $75,000 to $100,000, who were willing to accept standardization’. Their slogan “More
House, Less Money” highlighted their uniquunique tacticeness of competing on the basis of
volumes by offering low- cost home-buying solutions.

Examining the business model of Quadrant homes on the concept, capability and value
proposition model, we see that integration between the three was a major reason for the success
of the company.

Concept

The focus and the vision of Quadrant Homes was directed towards its competitive advantage,
which was to offer standardized homes with very few customizable options to first-time buyers
at a low cost. The product mix was limited, andthis allowed them to focus on their strengths like
in the case of Benihana. Offering limited options was the key in Benihana, as they offered only 3

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types of products in their menu, like Quadrant Homes who offered only a few types of window
size options. The same is the case withAlso like in Toyota, where they offereded options in
exterior looks which did not hamper their lean operations.

Capability

Their concept was ably supported by their capabilities that they had developed over time. The
table below highlights the four rules of TPS as employed by Quadrant Homes which ensured
their lean operations:

TPS Rules Application

Rule 1 The houses were standardized with very few options. The 54-day string line schedule
was strictly followed with specified activities. Any deviation from the string line
schedule was highlighted in red (Kanban system).
Rule 2 A single source supplier was clearly defined for each product. They had outsourced the
construction portion of their work to suppliers who knew their roles and were
seamlessly integrated into the system to avoid any delays.
Rule 3 Every portion of the construction followed a simple path and strict guidelines. From the
purchase of buildings, to proximity houses, the relationships with interstate agencies and
the rules for customers ensured the even flow schedule for Quadrant.
Rule 4 They employed the scientific method to avoid the ‘common delays’ on construction
jobs. They utilized the string line and made changes to the whole system to ensure there
wais no waste which affects their lean system.

As seen in McDonalds, suppliers and franchises were integral to their operations. Quadrant
Homes had developed its suppliers, who were involved in the continuous improvement of
processes (Kaizen). Woodinville Lumber (WL), like JCI, had built itstheir operations in
conjunction with Quadrant Homes. The companyy had full access to Quadrant’s data, which
enabled them to purchase inventory well in advance.

Quadrant also applied the Ohno’s approach on identifying ‘muda’. Their workflow followed a
simplified path according to the string line schedule (production scheduling). Resource planning
and inventory management was made easier due to the backlog of houses. Unlike Sport

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Obermeyer, their inventory was reactive in nature as they took advantage of the orders awaiting
to start construction to avoid over production (houses build for speculation).

Value Proposition

The value proposition to the customer was convenience and speed, as customers had to make
very few decisions as Quadrant provided a one-stop shop. They also offered low cost for more
space and easy financing facilities For athe company which was competing on high volumes,
they had low inventory and production lead times, leading to economies of scale and highbetter
profitability. The supplier got their payments on time and regularly regardless of economic
conditions which fostered a great working relationship between them.

Universal Factors

The financial market and credit rating agencies had eased their criteria for financing facilities to
the customers, especially in the housing segment. Additionally, factors like excellent working
conditions with an industry leading workplace safety record and a positive word of mouth were
essential elements in the success of Quadrant homes.

Missteps of Quadrant Homes and Solutions

Complacency

Being successful for 10-years resulted in the company becoming complacent and they failed to
predict the changing customer trends. The tastes of generation Y varied greatly from their
existing market. Gen Y demanded more differentiation in their houses and preferred to live in
urban areas as compared to suburbs.

Quadrant should have conducted market research in 2004-05. Keeping up to date with the
evolving market trends is essential for every business. It was not until 2009, that they realized
that product differentiation was the need of the hour.

Economic Depression & Speculative Inventories

The housing market is directly linked with the economy, as the world experienced the biggest
economic depression of the era and demand for new houses declined. People were more

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interested in cheaper properties that had been foreclosed. During this time, Quadrant homes
failed to realize that their existing focus had failed to evolve with the market. They started to
build speculative inventory at a time whene in which there was no demand for their product.

Declining Backlog

By 2006, Quadrant had increased their starts per day to 7. The artificial bubble that had been
created by the sub-prime mortgages resulted in Quadrants backlog to decline to historical lows.

The declining backlog was a signal to Quadrant home that their product had gone out of fashion.
Instead of continuously building standardized houses, they should have realized that their lean
model and the old IT infrastructure was holding them back. Competitors had evolved with the
preferences of the customers.

New Challenges

To keep up with the market, Quadrant Homes needs to change its business model. Their concept
must change as they have lost focus and their competitive advantage. They need to move away
from exploitation to exploration. The focus would move away from speed and cost to flexibility
and quality. Their aim should bey had to become customer- focused while maintaining their
operational excellence. Taking insights from Organizational Behaviour, the first major challenge
it faces isto changinge the vision and the culture of the organization. ItThey needs a new
transformational leader to move away from their existing operations and build new capabilities.
Change brings anxiety and confusion among the workforce, so people unwilling to change will
have to be let go. Fresh energetic sales people will need to be added so they can implement ‘the
yes’ approach. New supplier relationships and ERP system would need to be developed to cater
to the various customizable build options. They would also need to build new showrooms, model
houses and utilize technologies and build catalogues. Customer involvement in the whole
process was very low till 2007 (Exhibit 2) however, the customers have now become co-
creators.

Building new capabilities and vision was studied in cases like VMMC, TCS Hazir and Amazon
Fresh. VMMC changed their vision to become more customer focused. The resistance to change
was visible in the physicians, as admin tried to impart the new culture within the organization.

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Quadrant can gain insights from the steps taken by VMMC management. They had evolved TPS
to further suit their needs. TCS Hazir and Amazon Fresh built new capabilities to enhance
customer experience. Continuous innovation was at the core of both companies. The
involvement of customers increased for both companies as they moved towards crowd- sourcing.
They developed capabilities to match the different requirements of the customer. Quadrant’s
customization options can be linked to the customers becoming co-creators of their homes
instead of giving out a standardized product.

Feasibility

It is not feasible for Quadrant to run all three clusters. Each cluster targets a completely different
target market, with a different set of requirements. BYW can be run on the 57-day string line
schedule, however, Evoke and UI pose various challenges. Standardization of certain processes
would still need to be done to reduce the construction time. The high degree of customization in
Evoke will result in higher construction time. Quadrant will need to build new supplier
relationships and move away from the existing one supplier model. With their experience in
supplier development, they can encourage innovation and reward suppliers that come up with the
best ideas to reduce construction times. As studied in the Business Intelligence case of Netflix,
they held a competition to improve their algorithm of customer preferences, gaining insight from
this, suppliers of Quadrant can be rewarded for improving the processes. They will also need
better forecasting techniques to cater to the demand of houses as their speculative inventory will
increase. They can utilize multiple regression techniques to predict the evolving needs of the
customer. Market Research needs to be at the heart of their business. Catering to the evolving
customer needs and co-creating with the customer will lead to the Quadrant regaining its
competitive advantage. Quadrant would themselves need to apply Kaizen and scientific methods
to cater to the challenges. They would need a highly motivated workforce and new information
systems which support flexibility while maintaining their lean philosophy.

Implementation of the Model in Pakistan

Model of Quadrant homes can be utilized by builders who are engaged in producing
homogenous homes. Societies such as Eden, Askari and Bahria can benefit from the lean model.
Developing supplier relationships and integrating them in the value chain is of prime importance.

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However, this model would not have worked in Pakistan as it is based on trust. Suppliers provide
low- quality material and save their costs and the developers do not pay on time which results in
mistrust among the partners. Also, the labour employed as the workforce tend to steal the
material which increases wastages and hampers the implementation of the lean model. The
construction material used in Pakistan is very different from those used in US. Thus, weather
conditions have a major impact in the scheduling of the construction.

For a person engaged in developing homogenous properties it is of utmost importance that a

backlog of orders is created, as speculation in the current property market is very risky.
Developing a trusted supplier of each material would be beneficial and bulk- buying of materials
will reduce costs. Developing a schedule and delivering on time will increase customer trust in
the societies as majority of these societies take much longer than anticipated. Oversight is of
prime importance to avoid wastage of material, exploitation by labour force and suppliers.

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