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The Best Kept Secret of Modular Construction

Often, modular construction doesn’t appear to be cheaper than traditional construction. So, are companies such as McDonalds, citizenM or Marriott completely mistaken with their commitment to modular construction? Why all that effort without return?

Cheap, temporary and ugly are the most frequently heard objections when it comes to modular construction. A prejudice which has mainly been created by the industry itself. They have promoted modular buildings from the 1980’s onward as a quick solution for cheap and temporary construction. Their subsequent transfer to permanent modular buildings started mainly with custodial facilities and military barracks. Two segments which require very robust quality but hardly appeal to the imagination.

Since then, modular construction has changed dramatically. Hotel chains, residential developers and student housing companies have successfully created portfolios of interesting modular buildings that have a life span and appearance equivalent to traditional buildings. My last two articles 'The World's Highest Modular Hotel' and 'London's Modular Marvel' describe two excellent examples of such projects.

Throughout the modular building industry, most parties promote the same advantages: A shorter construction time, better quality, less dependency on subcontractors, less truck movements and therefore less pressure on the local infrastructure, less waste, less cost overruns and more grip on the time schedule. All of these are valid points that clearly explain the difference between traditional and modular construction. Nevertheless, the most essential point of modular construction is missing; the intrinsic advantage of industrialization.

If you keep doing what you did, you get what you got

Labor productivity in the construction industry in the Western world has dropped in the past 25 years. In the manufacturing industry the labor productivity increased about 60% during the same period.

This is because the manufacturing industry has invested heavily in automation, process improvement, cost optimization and R & D. The construction industry has failed to do this. Even elementary systems used in the manufacturing industry, such as DfMA (Design for Manufacturing and Assembly) or FMEA (Failure Mode Effect Analyses), are unknown to most builders. As a result, those who design buildings do not take production optimization into account, and too little is learned from earlier mistakes. In fact, every new building is a prototype that has the same problems as the previous one.

Due to this lack of innovation there are always three certainties in the construction industry, (1) every year the prices follow the construction cost index, (2.) increased specifications lead to additional costs (3.) the delivered quality varies greatly.

From Costs to Value

The manufacturing industry has a permanent focus on adding value to its product. Value creation means that you lower the manufacturing cost of a product. This allows you to increase your profit or to lower your sales price, but mostly is used to improve the product’s specifications against no extra costs. An example of how value creation works is, for example, the TV. A 16-inch black-and-white TV in the 1950’s was comparatively more expensive than the 50-inch UHD Smart TV of today. Although the basic function has remained the same, a huge range of improvements and additions has been implemented which you actually get for free.

Through modular building, value creation has now also entered the domain of the construction industry. The advantages of an expedited time-schedule and better building quality are just the beginning. The real difference becomes evident when the industrially produced modules are optimized during every new round of production. This can be achieved by optimizing the design with the help of R & D, improving the assembly processes and streamlining the procurement.

From Value to Profit

During a period of ten years I have been in charge of the modular development and construction of a series of hotels of which the modular hotel room has been optimized four times during that period.

When we arrived at version four of the room, the factory cost price was 20% lower than that of version one. We had achieved this through design optimization, standardization, improvement of the building system, better use of materials, smarter procurement and continuous cost management.

A spectacular result, beside which something else happened. By adding step-by-step extras such as better climate systems, improved domotica, better lighting and all kinds of interior upgrades, the value of that same room also increased with more than 5%.

The most underrated advantage of modular building is that it leads to value creation during the development of real estate. It unties construction from the annual construction cost index. In addition, improved specifications do not automatically lead to additional costs and it guarantees a consistent high quality of the final product.

Whoever finds out that modular construction costs as much as traditional construction has found himself a bargain. But if you have multiple projects, you have hit the jackpot!

Carel van Houte is owner of Prolodge, providing independent advisory services for the design and modular construction of commercial real estate. Previously he was chief design & construction officer at citizenM Hotels. carel@prolodge.nl www.prolodge.nl

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