How Manufacturers & Dealers Can Make the Move Into Prefab

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Scott Myer is Chief Operating Officer at Integrity Building Products, a prefab building products company. In this episode, he talks with Beth all about prefab construction.
 

Scott started at Integrity as an operations manager 12 years ago. Since then, the company has expanded from a typical retail lumber yard into prefab walls, trusses, floor systems and lumber supply with a business-to-business customer base, which has allowed them to become more innovative and creative. Over the years, they've grown from servicing their single small town of Okotoks to servicing all of Southern Alberta and into the lower portions of BC.

When it was first founded by Scott's brother, Jerry, one of the core values was innovation. "And if we are going to ask our people to think like that, we had to do that ourselves. So we took a dive into prefab specifically about four years ago," Scott explained. Since then, they've found out what's possible and how much opportunity there is for Integrity to evolve in the prefab space.

During a trip to Germany in 2019, Integrity purchased a prefab line built by Wyman and has since bought a second line.

"Rather than just comply, doing material take-offs and sending fixed lumber, we decided that we would get a little bit more precise, we would get a little bit more construction savvy and intelligent with how we appropriate our materials and offer something different. I don't know if every market is the same, but ours is a very tight marketplace. It is highly competitive and if you are not doing something different, you are going to be swallowed up by either larger providers or you are going to be ignored by some of the bigger builders that require it. We all sell the same things. You are going to be driven by price and you're going to be driven by relationship[s], so we decided to diversify a little bit," says Scott.

As they dive further into the prefab world, Scott explains that there's a shift in builders, and their customers are willing to explore, but they have had to build a strategy around customer retention. It can be extremely hard to replace larger builders, but what Integrity did was not only ensure they owned a large share of each builder's wallet but that builders were so integrated with their business that it was hard for them to leave.

"Now, that isn't a manipulative strategy — it is a security strategy," Scott explains. "And we get held to the task to ensure that what we're bringing is truly valuable. I look at it as both a way to gain business but to retain business."

However, converting customers didn’t happen immediately — it happened over time. "When we first started commercializing our wall panel, we did a bit of an incubation and trial and error phase," Scott says, and then they began to leverage existing relationships to get more opportunities. He gives the example of a builder client, Calbridge Home, a custom home builder who builds between 200-250 homes a year.

"They actually took the first risk with us … they carved out a community of approximately 50 addresses annually where we would prototype this system. We would be giving the full gamut to run with wall panel, and they would trial it. That turned into a success story for them." Integrity started with the simplest prefab form in that first community and is now working on complex forms for Calbridge Homes’ estate-level homes in difficult-to-build locations, such as on an island in a lake.

"Going back to 2019, they didn't need it, they didn't want it, they didn't ask for it. We made a pitch. We showed them some small samples that might give them some intrigue and then really leveraged the relationship piece to allow us the chance. Once given the chance, it was our responsibility and our goal is to make sure that it was never given back, and we feel like we've done that effectively," says Scott.

Since they first converted Calbridge, Integrity has seen an increase in demand for prefab products. Part of the increase is due to the success with Calbridge, but there's also a general feeling in the industry that field labor is not coming back. Builders who don't start converting to prefab are going to get left behind, Scott feels. "I think, genuinely, the marketplace is shifting, and it's becoming more well-adopted."

"Labor is obviously something we talk about on this show all the time and talk with other manufacturers about as well," says Beth. "And I was reading an article yesterday that said that 91% of contractors had trouble filling labor positions on their workforces on their teams in 2022."

Yet, when we hear talk about prefab, most people talk about cost and time savings before they mention labor savings. "We know that homeowners, especially in 2023, have been so beaten down about demand on the marketplace, that time isn't really that big of a proponent. And if you want a house, then I tell you, it's going to take you 18 months to get into that house, you're going to say ‘please’ and ‘thank you.’ But labor is the thing that is keeping us from having enough homes to meet demand," continues Beth.

While the priority list of many builders (and homeowners) may have been time in the past, money and labor, today’s priority has shifted to labor, money and then time.

Beth points out that every few years, prefab and off-site construction comes onto everyone's radar — excitement begins to build and then interest fades, and a few years later, the cycle begins again. So why hasn't prefab had that significant snowball effect yet?

"I think the wavering is a little bit of trepidation or a lack of risk tolerance," Scott admits. The clients that Integrity hasn't been able to convert all claim risk as their main reason. They don't want to "bastardize their framing partners." In fact, the inability to bring collaborative framing partners along for the ride is one of Integrity's biggest conversion challenges. Instead, they are asking builders to convert their framers to Integrity's methods.

Plus, the building industry is a traditionalist. "They've mastered their craft over a number of years. Change is never going to be something that's easy for them. So we're fighting two fronts. We were fighting the risks that the builder was about to undertake, and we're fighting the risks that we're presenting to the frameworks — that they are a dying breed or going to lose an opportunity," explains Scott.

And — at least in Calgary or Southern Alberta, Scott clarifies — there haven't been enough positive outcomes in the prefab space. Some have tried it and failed, and some quit before they could really do much. That applies to both builders and suppliers.

"A lot of the instances that I've known have been basically that somebody has tried it, they've put their best foot forward, but they've never been able to fully bridge the gap of what the capital investment is, what the time investment is and adapting your business model to support it."

To go into prefab, you have to go all in. "You can't dip your toes in," as Scott puts it. The climb in popularity today is partly because there are more success stories and more validation to prefab. The more successes we see in the prefab industry, the more positive feelings in customers and the more the industry will adopt this method of building.

"Imitation is [the] best form of flattery. Builders want to see others take the risk, then decide whether or not they're going to make a decision themselves. I think there's a lot more of those examples that we can use to leverage the conversations that we're going have later on with other potentials," Scott says.

Labor is going to continue to be a problem, and demand is going to continue to be high, Scott predicts. Even though interest rates are high, there's still going to be an increase in home building, especially in Canada. "Alberta had the largest single year of immigration into our province since the early '80s, and there's no signs of that closing down. We have a government right now that is really incentivizing immigration to Canada. We're looking at half a million people by the end of 2025, which for Canada, is lots."

Knowing that, Scott predicts the demand is going to be for multi-family properties, along with entry-level, lower-income single-family homes. Builders are going to try to shorten the build cycle as much as they can. The longer a home is under construction, the more risk that builder carries, so a shorter build cycle — which prefab provides — is critical.

Scott also thinks the industry will continue to leverage technology, innovation, efficiencies and precision. Unlike the last two years, manufacturers and suppliers won't simply be graded on price. Builders will want to know if you can get them what they need when they need it, built to the level of precision needed and with limited risk to their efficiencies and their ability to control their costs.

Integrity follows a blended model, as they offer both stick frame and prefab, and Scott suggests that everyone who follows a blended model use variance purchase orders. "We use what we call variance purchase orders to quantify how much more efficient from a budget standpoint a wall panel job is versus a stick frame."

"Right now, we average 5-7 percent on variance purchase orders, which is basically the field calling us for more stuff. You look at prefab, and we're under 1 percent. Because again, we are controlling the products going into the home. We are precise. We have 3D modeled it [the project] to a 16th of an inch. We have sent you exactly what you need to build that house. There should be no cost overrun, and it [the cost] should be fixed."

If you're a manufacturer or a lumber dealer considering investing more or getting behind prefabrication in some way, Scott says the biggest thing you need to do is pay attention to the software you choose.

"The software that we use is the biggest catalyst for what we're able to provide as an output. We use MiTek in almost every aspect of our business. Obviously, [it is] one of the most pronounced and used software in the world. But we use it for its intended purposes. We use it all the way through — we use it for management, we use it for structure [and] we use it for production," Scott explains. "We ask our customers to engage in that. We ask our customers to provide us with AUTOCAD files that we're able to create 3D modeling, and we ask our customers to convert their process to adapt to ours, to allow us to give them the best output."

However, Scott warns that prefab is not for the faint of heart. "If you're not gonna do the legwork on the pre-construction side, you will fail." Scott suggests having one specific employee that does field planning — this person should travel to every single site and analyze site readiness. The last thing you want to do is dedicate resources to a site that doesn't work or isn't ready

Scott leaves with some advice about passion. "As much as you have to, don't worry about the profits. If you think that the idea has legs and you're passionate about the idea, I truly believe you'll find a way to convince others of the same. And that's really what we did over the last three or four years here, is really trying to exude our passion and our commitment to the innovation and the improvement of the industry upon our clients, and we're blessed to have clients that trust us."

To learn more about prefab construction, listen to the entire episode here. You can reach out to Scott via email at scott.m@integritybuild.com. Or you can reach out to Integrity Building on Facebook or LinkedIn.

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