Cavalier Homes' Software Overhaul: Caught Short

 
 
By Larry Barrett  |  Posted 2002-08-09
 
 
 

Jay Wilson began to realize costs were out of control at Cavalier Homes when the company discovered two of its service technicians scheduled to service jobs in the same region were staying in the same hotel in Little Rock on the same night and didn't know it.

PDF DownloadThe fact that one of the service technicians might have handled both jobs, making better use of company resources, was the immediate problem. But the inefficiency was in keeping with other problems at Cavalier—problems that were easy to overlook when the economy was strong but that became inescapable when it wasn't.

Cavalier is just now learning how inefficient its entire operation was during those boom times and, more importantly, how much it's going to need new technology if it's to survive the implosion of the manufactured housing industry.

"We saw how much trouble we and the rest of the industry were in and realized we had to start making some changes," says Wilson, chief information officer of the Addison, Ala. company. "We'd grown so rapidly, both internally and through acquisition, that we needed to organize ourselves in a way that made sense."

The first order of business for Wilson's team was to purchase and deploy an enterprise resource planning system that could manage all of its sales, accounting, manufacturing and service divisions in the same terms. A part in Belmont, Miss., needed to have the same stock-keeping unit (SKU) as a part in Addison, Ala.

After an exhaustive search, Cavalier opted for SAP's R/3 software as the project's backbone. It's a project aimed at yielding improvements in sales, inventory reductions and manufacturing efficiencies—but that Cavalier, to its own disappointment, had to suspend last year when unexpectedly large losses in its core business forced it to identify costs it could cut.

To date, the SAP project is little more than half done, and Cavalier has invested $5 million in it. But that is enough to put the project's benefits—as well as its challenges—into focus.

Wilson says the most difficult aspect of the installation was marrying Cavalier's internal inventory-tracking and identification systems to the detailed requirements within the SAP system. For example, a screw or carpet or piece of metal used in the frame of a house might have had three or four different SKUs assigned to it at three or four different Cavalier plants. That had to end.

Defining a single standard for each part and service throughout the entire operation, and then making sure that same part number showed up at each step—purchasing, ordering, installation and later servicing—proved to be the biggest headache throughout the SAP implementation.

"Once we were able to get everyone on the same page, it was amazing how smoothly the software ran and the kind of information we could get from it," Wilson says. "But to get to that point took years off my life."

Structural Strains

From the start, Cavalier felt the strain, not only of its declining business but the inevitable disorder that accompanies any large-scale software implementation.

"We had so many disparate systems from all these years of acquisition that we really needed to get to one single universe for all our transaction systems," Wilson says.

One of the first priorities was to get all of Cavalier's manufacturing plants and service centers all speaking the same language.

Prior to the SAP implementation and the concurrent business-process re-engineering that Cavalier went through, it wasn't uncommon, for example, for different Cavalier manufacturing sites to have boards that were 7-feet-8 inches or 8-feet-2 inches in length both being recorded as 8-foot boards in Cavalier's computers. Such discrepancies messed up the company's purchasing and inventory management, and frustrated service technicians who might end up with a board too long or short for their purposes.

All told, the introduction of planning software and tight controls of the manufacturing process meant Cavalier could build a new manufactured home for $1,600 less in an SAP plant than in one of its traditional plants (though not more cheaply than the industry average, as the chart on the following page shows).

The SAP software has also proven to have value as a business-intelligence tool. In particular, it appears to have given Cavalier managers insight into exactly what customers did and did not want in their new manufactured homes. For instance, the software told Cavalier that more than 90% of new manufactured home-buyers were choosing the same options over and over again.

That insight has allowed Cavalier to realize certain efficiencies—at least in the locations where the SAP rollout is complete. Overall, the company has reduced its raw materials SKUs from 15,000 to 1,300 and chopped its inventory of raw materials in half. Less inventory on hand frees up cash, lowers storage costs and reduces loss due to damage or theft.

Carpets, floor plans, lighting, kitchen cabinets and every other conceivable option in a new home have been narrowed down to the most popular options, clearing more inventory space and speeding up the manufacturing cycle.

At one point, Cavalier's manufacturing plant in Addison carried more than 300 different types and styles of deck boards. Now, they're only stocking two types because the data they unearthed showed those choices were what customers wanted most. Similar inventory reductions have been made in everything from vinyl-siding colors to cabinet styles.

"So we just started building the homes with those popular options as part of our standard home," Wilson said. "Sure, we still have to be ready for that one customer that might want blue carpet or whatever, but by gaining visibility at the enterprise level we're able to eliminate the options and therefore the inventory of parts or features that customers simply didn't want."

Wilson figures that if Cavalier is saving $1,600 per home with only 60% of Cavalier's manufacturing facilities using the software, the company will save even more once the implementation is complete.

In any event, the benefits to Cavalier haven't accrued from better inventory management alone; the system for processing orders also has improved markedly. Case in point: Before SAP was installed, a dealer in Tennessee ordering a home had to call in that order to the Cavalier plant in Addison. The Cavalier representative, in turn, had to manually price out the specific model and options for the customer's home piece-by-piece before calling the dealer back with the sales price. For one home, that's arguably no big deal. But when you're selling an average of 31 new manufactured homes a day—and this was during the dreary selling conditions in 2000—those time-savings add up in a hurry.

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Manufactured-Home Bust

These improvements have all come during what Wilson calls "a free fall" in the manufactured home industry. Just 193,000 homes were sold in 2001, compared to the 372,000 new manufactured homes that were sold in the boom days of 1998. The market continues to drag; analysts expect just 180,000 new manufactured home sales in 2002.

"Crappy is the word for it," says Rob Marshall, an analyst at Wachovia Securities. "There was a ton of loose credit in the mid-'90s. Now that the lending standards have tightened, sales have fallen and the economy has only gotten worse. Everyone is still paying for the sins of past years."

With its SAP project suspended, Cavalier finds itself in the not-uncommon position of knowing the technology can improve efficiency and profits, but not being able to fully deploy it.

Only three of Cavalier's 14 manufacturing sites are fully integrated with the planned manufacturing, order-processing and materials management applications from SAP. In part, the issue is one of people resources:

In the last year Cavalier's technology staff has been cut in half, from 16 to eight, putting the project more than a year behind the ambitious rollout schedule Cavalier settled on before the market turned sour.

"We've been through a lot," Wilson says. "We did a gut check with our CEO and told him we needed to expand our IT budget, despite the state of our industry and our company, to install this software in other plants. He had the courage to say that we were going to change the company."

And it's not clear whether Cavalier would have canceled the SAP plan altogether even if it foresaw the market downturn that was coming—though it may have planned to take it slower from the start.

"This installation turned our company upside down in the past two years," says Scotty Pickle, currently controller of the Addison facility but formerly the SAP installation project manager. "It also came at maybe the worst time possible for us as a company. Some may have asked how we could afford to make this type of investment but looking back at it now, I'm not sure we could have afforded not to do this."