Main Street Renewal buys and renovates homes before selling them in tranches to investors. Based in Austin, Texas, the company has branches in 19 cities, with more coming soon including Las Vegas, Phoenix, and Denver. What sets Main Street Renewal apart from its competitors is the standardised approach it takes to its properties.
Of course, it wasn’t always this way. When Main Street Renewal entered the single family residence (SFR) industry in late 2012, the contractor mentality was standard across the renovate-to-rent platform. The practice consisted of obtaining multiple bids for a single project, and whoever came in the cheapest, was usually awarded the job. After the project was completed, the vendor would return to the pool for the next round of bidding with no guarantee of future work. Supply chain principles and processes remained obscure in an industry that had become comfortable with the status quo.
With any successful business, sustainability lives and dies in the margins. Profit margin is the most discussed measure in the public space, but cost control is not the only factor that drives Main Street Renewal’s business model. Equal importance is placed on both quality of product and the ultimate margin, time. Cost, quality, and time form what Mike Cavanaugh, Senior Vice President of Supply Chain, calls the triangle of success. Each key measure occupies a single corner of the triangle and is positioned at a 45 degree angle from one another as a reminder that if one side breaks symmetry, the triangle, as well as success, becomes skewed.
In the early stages, Main Street Renewal had standardised materials (granite, carpet and paint, for example) at a set price to create a uniform aesthetic within their properties. However, with multiple different vendors cycling in and out of each house every time, quality became inconsistent and repair completion timelines extended. The Main Street Renewal team identified inefficiencies within the process and decided to break rank from the industry norm and pursue a different approach. With this deviation, a dedicated supply chain team was formed.
Strength in partnership
The Main Street Renewal team recognised the fundamental base of each business lies within the processes by which it operates, and at the most elementary level, the principles driving those processes are synonymous across all industries. Their team saw the potential of applying traditional supply chain methodology in a non-traditional setting.
“A house is unique each and every time – you don’t necessarily know what you’re going to get with any particular house,” acknowledges Cavanaugh. “We’ve tried to think about it a bit differently. We’re going to bring every home we buy to a certain standard, so we’ve taken traditional supply chain principles of sourcing, strategic partnerships and demand forecasting and applied those into that construction environment.”
A typical supply chain team oversees the development, production, and maintenance of a product and is no different within Main Street Renewal. The home and service are the end products with all contributors and resources falling under a structured network, therefore, can benefit through specific supply chain processes. The first step was directly approaching distributors and suppliers using volume and exposure to negotiate pricing on raw materials. Main Street Renewal chose a single colour and grade of each product put in their homes as a way to not only reduce cost but also create consistency and a standard of quality across all markets.
This has certainly provided advantages for Main Street Renewals in terms of pricing. “If you think about a manufacturing site taking all the parts and pulling them together, we’re doing the same thing. It’s the same part we use each and every time, so that’s given us the opportunity to really go deep inside of our supply chain and work directly with our distributors and suppliers on raw material pricing,” remarks Cavanaugh.
Main Street Renewal’s vendor partners can buy directly from those suppliers and distributors at a nationally agreed upon rate. “That allows us additional cost focus inside and throughout the supply chain. We can start to now optimise logistics routes and where different raw materials are located, positioning, and where, how and what we buy,” Cavanaugh advises.
With control over the material supply, Main Street Renewal set out to streamline the ‘assembly process’ for their products. Even after providing standardised materials at a below market cost, the Main Street Renewal team found repair timelines and quality standards continued to fall below expectations. The deficiencies were a direct result of the vendor selection process which made it possible that a different vendor could work on every home within the MSR portfolio. By eliminating the contractor mentality, Main Street Renewal soon realised the benefit of forming partnerships with quality vendors.
Main Street Renewal very much sees its vendors as partners. “You won’t hear us call our vendor partners contractors although predominantly the industry thinks about our vendor partners as contractors,” Cavanaugh comments. “The contractor mentality in the whole building industry is very much ‘you are my contractor for this job right here and when I go build that house next to it, everybody’s going to have the opportunity to bid for that next job’.”
Deviating from the industry standard can be risky, but Main Street Renewal believed the best long term strategy was to form partnerships with quality vendors in each market and have both parties agree to a set labour and material pricing through one statement of work that would apply to all properties within a given market. This resulted in the dissolution of the bidding process and reduced the vendor pool by a significant volume. The contracts with suppliers and distributors for the price of materials meant Main Street Renewal can renovate homes at an all-in cost that’s below market and their competitors.
Agreeing to standardise pricing didn’t guarantee work as potential vendor partners needed to meet additional standards of quality and timelines to become a primary vendor. Once on-boarded, vendor partners needed to maintain those standards to continue receiving work. Main Street Renewal would fulfil its side of the relationship by providing volume, material price, and payment timelines with a reporting cadence implemented to provide feedback to vendors on both theirs and Main Street Renewal’s performance. Vendors were initially wary of the new process but warmed up quickly when they realised volume and material premiums could provide a steady income stream.
The relationship between Main Street Renewal and its vendor partners is a two-way street, encouraging both sides to perform to a high standard. “If we have a vendor whose performance starts to slip, we prefer to spend the time and invest in that vendor – to give them the opportunity to turn around, to share with them what’s going on, to give them ideas and tools and help them potentially perform better,” Cavanaugh explains.
Maintaining high standards is key to the success of Main Street Renewal clients, both investors and residents want to get the best value for their money. “When we walk through a house with an investor, it’s always worth hearing the feedback from their point of view, often it is this is a higher level of standard than what they were expecting,” states Cavanaugh. “That’s really attributed to the people who develop and support the processes we have throughout our entire supply chain, everyone focuses on delivering a Great House.”
Quality is an important goal for the company, as Cavanaugh illustrates: “Every year we strive to hit a level of quality that exceeds the expectations from our customers. This is where our Great House mantra is derived from. We define what a Great House is with data from previous residents, input from our current residents and investors and designs from our parent company. These inputs create a standard that is higher than what you would expect allowing us to set the bar so unbelievably high in terms of quality. Often companies are afraid of setting a high bar but we would absolutely rather aim high and miss than aim low and achieve. We encourage people to develop, to push themselves beyond what they believe the normal barriers would be for them to achieve a higher level of success and so we spend the time to invest in people to develop.”
Main Street Renewal recently attended a leadership conference to help its leaders get better. “When leaders get better we all win,” Cavanaugh explains. “We have approximately 405 people at Main Street Renewal, monthly we have Lean Six Sigma lunch-and-learn session that anybody in the company can sign up for, leadership series offered by our training and learning department and an Area Manager in Training programme. These programmes are just an inkling of what we do to invest in our people.”
Lean Six Sigma has formed an integral part of Main Street Renewal’s drive to always be looking for ways to work smarter. “We’ve taken Lean Six Sigma principles. This isn’t the rigorous often confused approach that forces structure, but the way of thinking about processes where you look at what you do differently, through the lens of how can we better profitably service our customers,” reveals Cavanaugh. “We’re using those Lean Six Sigma principles to give us tools that provide us a foundational way of thinking about how we do work, how we get work done every day.”
One great example of how Main Street Renewal has integrated the Lean Six Sigma way of thinking into their business is through the Hoshin Kanri. Cavanaugh explains that: “We use Hoshin as a key driver of our business goals and strategic direction setting. We ensure through the Hoshin matrix that the results expected by our investors and residents are directly tied to our one- and three-year plans. In the typical business approach, there are always great ideas but too often those ideas outnumber resources. With the Hoshin matrix we ensure through alignment the priorities we all agreed on are the ones that are actively being worked on.”
As the US economy picks up – 209,000 jobs were added in July 2017 alone – Main Street Renewal is seeing an uptick in its business. “People are buying again and it’s a great time to invest in single-family housing. The trend that we’re seeing in the industry is a lot more competition in the market and we’re approaching that by trying to become more efficient in not just how we buy homes but how we rehab homes,” Cavanaugh observes. With the support of its vendor partners, things certainly look set to continue getting better for Main Street Renewal over the coming years.