Project Management Process

Piedmont Housing Alliance (PHA) Logistics Process Improvement Implementing a Streamlined Logistics Process

July 2010

Executive Summary

Background — PHA needs to identify ways to make its project management functions

more efficient so that the organization can sustain its level of performance and not lose

value or credibility due to lack of improper execution in its retrofitting projects. The

logistics process for the retrofitting of PHA’s rental properties is causing the organization

to suffer unnecessary costs, time, and productivity. Ultimately, the organization is

seeing the result of these inefficiencies in its project cycle times and break-even points.

On average, the organization’s project cycle time is approximately 2 – 3 months beyond

the completion point established during the planning process. Subsequently, the

average break-even point is approximately $470K as opposed to the $350K - $400K

range that the organization sets as its mark for optimal performance. Thus, the

recommendations for the implementation of a streamlined logistics process take a

holistic approach to addressing certain inefficiencies in the fulfillment of the retrofitting

projects.

Addressing Problems – A deployment flowchart and Ishikawa Diagram have been

used to provide some transparency to the inefficiencies in the logistics process. As you

will see, these problems cover four main areas: 1) procurement, 2) supply chain

management, 3) customer service, and 4) marketing. These four components

encompass all inefficiencies present in the fulfillment of the organization’s retrofitting

projects. Thus, lean recommendations have been made to effectively mitigate these

issues via a continuum of continuous process improvement steps.

Lean Recommendations and Continued Process Improvement – Recommendation

1 involves performing a materials audit for the project to ensure that the budget

allocates enough money to procure the right amounts of materials. Also, each set of

materials gets allocated an extra 3% in the budget in order to account for defects,

contractor mistakes, and potential stock outs. This recommendation concludes with

establishing a 10% reorder point so that materials are always readily available and the

project does not reach a point of inactivity.

Recommendation 2 advises the organization to consolidate the number of suppliers

used by bringing on project-specific contractors. Using accessibility-specific contractors

and contractors who are certified by the Energy Star program will help the organization

identify the most appropriate suppliers and eliminate the contractors who do not present

a cost-effective scenario for PHA. The idea is to capitalize on the knowledge of specialty

contractors who will know best-practices in choosing suppliers. This will effectively

eliminate project lag times and the knowledge gap experienced by contractors who are

unfamiliar with PHA’s retrofitting needs.

Recommendation 3 advises that pre-project and post-project marketing strategies be

developed to improve the break-even point by getting the newly retrofitted apartment

leased well within the 6-month post-project timeframe. The organization would like to

have the majority of the apartments leased— reserved ahead of time— as the project is

taking place. The post-project leasing activity should not be as time-intensive if the right

marketing strategy is implemented at the inception of the project.

Recommendation 4 basically advises that the property management team engage in

ongoing communication with tenants. The tenants who live at these rental properties are

having their daily routines interrupted by the project process. Thus, it is imperative that

tenants be notified about the scope of the project, timeline, and its ultimate benefit to

them. Without this communication, PHA will lose credibility in the community and it will

make it that much harder to lease the new apartments; resulting in a steeper break-

even point.

7/19/2010

| Try Muller

PHA CREATING A LEAN LOGISTICS PROCESS

Table of Contents

Problem Background ..............................................................................................3

Problem Identification ...........................................................................................4

Problem Scope .......................................................................................................7

Lean Recommendations ....................................................................................... 10

Projected Outcomes: Continuous Improvement ................................................. 11

Problem Background

Piedmont Housing Alliance (PHA) is a private nonprofit organization that engages in

community development initiatives. A major part of these initiatives is building affordable

homes and housing units. The other major component of the organization’s work is purchasing

rental properties, retrofitting them to be completely accessible, and subsequently managing the

property. The logistics involved the project management of the purchase and retrofitting process

has been a hindrance to the organization for quite some time. From a public relations

perspective, the scope of the projects PHA engages in are impressive and very effective as

models of well-executed community development initiatives. Thus, they incite local

governments and other housing-related entities to perpetuate this thought process and identify

new ways to provide more diverse housing opportunities. However, from an internal perspective

PHA suffers unnecessary costs and often does not fulfill project objectives according to

schedule. There is definitely a causal relationship between the logistics process involved in

retrofitting the apartments and PHA’s performance. As a nonprofit organization, efficiency in

the logistics process is critical to the financial vitality of organization. Only having access to

limited resources requires that logistics be efficient such that projects are effective in their

purpose to provide working capital to the organization and appeal to the future tenants. There

are multiple inefficiencies in PHA’s retrofitting logistics process that ultimately reduce the

organization’s ability to achieve target project cycle time and break-even point.

Problem Identification

We need to first understand the current process in order to see what impediments to

performance PHA’s logistics are creating. Figure 1 is a deployment flowchart that shows how

PHA goes about fulfilling the projects needs from budgeting to project completion. The notes

marked in red on the chart show what efficiencies are being experienced in the process. Thus,

this will provide a strong basis for a continuous process improvement strategy. Subsequently,

figures 2 and 3 put the dynamics of PHA’s logistics into context by showing how the

organization adheres to its main performance standards. Figure 2 shows how PHA has

performed in achieving its goal of an approximate 6-month project cycle for its retrofitting

projects that consist of renovating 55 units. As the figure shows, PHA has fallen short of

achieving this performance standard by an average of 2.5 months. The organization’s

achievement of its other performance standard is depicted in Figure 3. This graph shows PHA’s

Finance

Proj

Mgmt

Suppliers

Building Contractor

Prop. Mmgt

Establish

budget

Identify

Contractor

Identify (3)

Suppliers

Orders

Materials

S1:

delivers

S2:

delivers

S3:

delivers

Rec.

Supplies

Project

Activity

S1

delivers

S2

delivers

S3

delivers

Reorder period

No activity

Post-

project

marketing

Leasing to

100%

capacity

Rec.

Supplies

Complete

Project

Communicating project activities to tenants. Moving and

replacing current tenants during renovation process.

FIGURE 1: Retrofitting project deployment flowchart

*Budget established without regard to materials

and subsequent inventory uncertainties

*stock out, stoppage period until materials received

*contractors/suppliers not conducive to performance goals

* (15) Day wait time for materials * (10) Day wait time for reordered materials

*poor communication; dissatisfied tenants *6 months until 100% of new

units leased

average break-even point to be between 22 - 23 months out. This is inclusive of the 6-month time

period property management is using to lease all new units. Ultimately, PHA’s performance

would be optimized by a 19 – 20 month break-even period.

Combined with the deployment flow chart, these graphs depict a very unfavorable

dynamic for PHA. The organization cannot afford to be inefficient in how their projects are

executed. There must be a strategy for continued process improvement if the organization is to

close the performance gaps that are posed by the project cycle time and break-even point.

0

1

2

3

4

5

6

7

8

9

Pro

ject

Cyc

le T

ime

(mo

nth

s)

Desired vs. Actual Project Cycle Time

Desired Project Cycle Time Actual Project Cycle Time

FIGURE 2: Project cycle times for similar rental property retrofitting projects (55 units)

Problem Scope

The following Ishikawa diagram will help with understanding the issues at hand. The

diagram has been used to make the problem and contributing factors more transparent and shows

the specific components of the logistics process that is hindering PHA’s performance. Looking at

the diagram we can see that there are four major areas in the organization’s logistics process that

need to be addressed: 1) Procurement, 2) Supply Chain Management, 3) Customer Service, and

4) marketing. The diagram will essentially help put the problem into context and provide some

transparency as to the underlying issues in PHA’s logistics process.

0

100000

200000

300000

400000

500000

600000

700000R

eve

nu

e in

th

ou

san

ds

Post-project time (100% leased)

Break even point

Total Revenue

Total Expense

FIGURE 3: Break-even analysis that includes the 6 month period allowed to reach 100% capacity

Desired

Performance

1. Procurement: poor inventory planning/budgeting

Budget dictates the amount of materials ordered instead of materials determining how

money is to be allocated to that portion of the budget

Direct impact on inventory planning because all materials are insufficient amounts

Combined, these two issues cause unnecessary costs for replenishment and stoppage

time

Implications

PHA loses money by using funds outside of budget

PROBLEM: Inability to achieve project cycle and break-even goals

1.Procurement

2.Supply Chain

Management

3.Customer

Service

4.Marketing

Poor budgeting

Poor inventory planning

No standards

Poor communication of

project activity with tenants

No post-project follow-up

Poor identification of

suppliers/contractors

Insufficient post- Project marketing

Insufficient pre-project marketing

Ordering from too many suppliers

Too long to lease

100% of units

(6 months)

FIGURE 4: IshiKawa Diagram - Problem Scope

Project goes through periods of inactivity

Undue financial burdens push back break-even point/time

Project inactivity increases project cycle time and break-even time

2. Supply Chain Management

Order strategy – ordering from (3) different suppliers

Deliver materials at inconvenient times

Only one supplier carries multiple materials

Contractors knowledge of accessible modifications questionable

Often have to inquire as to regulations

Frequently unfamiliar with accessibility standards

No standards for identifying suppliers/building contractors

No explicit standards for all logistics activities

Implications

PHA loses a lot of money with unconsolidated supply sources

This will ultimately increase costs and push back break-even point

Unknowledgeable contractors increase project cycle time due to mistakes and lack of

familiarity

Without holding the process to certain standards there will only ever be marginal

improvement

3. Customer Service

Property management ineffective in communicating project activity with tenants

Tenants are unaware of timelines (when they need to move and when they will be

replaced while renovation is taking place.

No follow-up conducted to ensure tenants have been adequately serviced

Implications

Nullifies the potential for grassroots marketing since tenants are dissatisfied with

process

Public perspective has negative connotations

Difficult to leas property to full capacity which pushes back break-even point

4. Marketing

No pre-project marketing (pull strategy)

Insufficient post-project marketing (push strategy)

Public virtually unaware of new project

Implications

Very difficult to inform potential tenants and reach 100% capacity within 6-month

period

Lack of incentives undervalue the project

Lack of pull/push strategy increases time to units leased at 100% and pushes back the

break-even point.

It is clear that the aforementioned contributing factors really hinder the effectiveness of

the logistics process to help PHA achieve its time targets and creates a more costly project than

necessary. The causal relationship between the project cycle time and the break-even point make

an explicit point: more time means more money. Thus, the current inefficiencies in the logistics

process cause the project to be ineffective in achieving organizational goals.

Lean Recommendations

The following recommendations will provide a continuum of process improvement that

will effectively create a leaner logistics process and allow PHA to reach its project goals.

Ultimately, the goal is to make this to make logistics process repeatable and replicable for all of

PHA’s community development projects. As the steps to continuous process improvement

evolve, earlier recommendations will be adapted or changed all together to accommodate the

next step in the strategy.

Recommendation 1:

o Perform a materials audit before assessing budget allocation so that materials are

properly accounted for

o Add 3% to the pre-established budget for materials from each supplier (3) = a 9%

budget increase specifically for materials

o The 9% budget increase for materials will take into consideration unforeseen

occurrence, defects, and contractor mistakes

o Establish a reorder point of (10%) for inventory

Recommendation 2:

o Consolidate suppliers by contracting project-specific contractors who focus on

our two main retrofitting areas:

Accessibility: Research and identify accessibility contractors who will

subsequently be in charge of identifying the most cost-effective and

efficient suppliers.

Energy Star: Research and identify contractors who are part of the

Environmental Protection Agency’s (EPA) Energy Star program and

possess a Energy Star certification. Allow them to identify the most cost-

effective and efficient suppliers.

Recommendation 3:

o Create a pre-project marketing strategy to create awareness about the project and

get people to sign leases ahead of time.

o Create a post-project marketing strategy and ribbon cutting event that will help fill

the vacant spots not filled by the pre-project strategy.

Recommendation 4:

o Send out information to each one of the tenants at the property giving them the

details of the project and continue this communication throughout the course of

the project.

o All tenants must be notified of the projected completion time and should receive

further communication should the project need to extend beyond that point.

Projected Outcomes: Continuous Improvement

It is important to remember that these recommendations are a continuum of continuous

process improvements that will eventually lead to a lean logistics process. Each project should

add one or more lean components to the logistics flow and PHA should see their costs reduce,

project cycle times decrease, and break-even point move to a more optimal performance level.

PHA’s main problem is that the logistics are not streamlined enough to even begin to address

performance gaps. By allowing extra inventory for material issues and budgeting to fulfill the

reorder point, the organization is reducing lag time and effectively decreasing cycle time. More

importantly, PHA will be pursuing a natural quality assurance strategy by choosing contractors

specific to the retrofitting project.

We see that that all recommendations are interrelated because they each address cost and

time— the major drivers of project cycle time and break-even points. Thus, this shows that PHA

cannot view components of the logistics process as independent from one another. The

organization will begin to close its performance gaps if it can take steps to incorporating these

new components into the logistics of the retrofitting process.

References

Coyle, John J., Langley John C. Jr.,Gibson, Brian J., Novack, Robert A., Bardi, Edward

J. (2008) Supply Chain Management: A Logistics Perspective. 8th edition. South-Western

Cengage Learning

Goff, S. (2007) Tight, Inflexible Deadlines: Scourge of Projects.

Retrieved July 1, 2010 from http://www.asapm.org/asapmag/articles/PM_WorldView.pdf

Klatch, W. (2005) Running a Supply Chain Project. Retrieved June 27, 2010 from

http://www.projectperfect.com.au/downloads/Info/info_supply_chain.pdf

Planning and Development Records. (2004) Piedmont Housing Alliance






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Project Management Process