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"The Missing 5 percent" covers the significant technological developments already at hand, but not being used effectively because of the lack of integrated development and the necessity of creating the awareness of utilization via the proper marketing and distribution to enable local implementation. Further, case histories of significant programs underway or being developed on a nationwide basis with such distribution are presented.

Key words: Building systems; integrated distribution; technological utilization.

About the topic, the name of it-the idea had been elling for a period of time after I heard a conference hat I felt was very meaningful. But, having selected the topic "The Missing 5 Percent," I am not sure I can convey what I mean, but I will certainly attempt it. The idea came from a comment by Ezra Ehrenkrantz that, "One man's system is another man's component." Meaning that no matter what we do in our fragmented areas, the interface that we have talked about still has to be assembled. A key engineer stated that 5 to 8 percent of the cost of planning and designing relates to putting unrelated items together; but, it accounts for 40 to 50 percent of our time, and 75 to 80 percent of our problems with the finished building. It is measured in confusion, customer dissatisfaction, callbacks, claims, etc.

So, any discussion with reference to systems interfacing, or any of the things that we have covered today, certainly relates itself to eliminating these problems or we have missed our functions in defining needed standards.

I don't think we should run our industry down the way some of us do consistently. We're not quite as backward and naive as we lead ourselves to believe, and sometimes we do ourselves harm by letting the public feel that we don't know what we are doing. I think some of the things that you have heard here have been significant and many significant things are underway.

I would like to quote from a recent study that was prepared by Seymor Kroll Associates of 200 of the leading builders in this country. One section of the study is called: "Builder's feelings about the use of new and substitute products represent a very frustrating and paradoxical situation." On the one hand, the builders indicate that cost-saving products are definitely wanted; on the other hand, they admit their reluctance to pioneer in the utilization of cost-saving products. While indicating that they are really thirsting for ideas, they simultaneously report seeing few such products.

Complicating the situation even more, builders appear unable to define the exact product area in which cost-saving ideas are most needed. They look to firms

for the conception in leadership and development of the product. It is important to note that even though builders are very receptive to new products (quoting Seymor Kroll), they will continue to be cautious in their acceptance of such products. They are emphatic in stating that each new product should be thoroughly tested and evaluated by the manufacturer or the designer before they will risk using it on any large-scale basis.

Also, builders feel that the installed cost of a new product must not be greater than that of the product which is being replaced. They feel that new products should have established consumer acceptance before they will use them. This leads to the dilemma of which comes first, the chicken or the egg. Consideration by the A62 Committee of product acceptance and development of testing is equally important to the coordination standards it develops. Also indicated is the need for controlled distribution at the contractor level.

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In the September 13 issue of Business Week (if you haven't seen it, make an effort to review a copy), the heading was, "Is Breakthrough Near in Mass Housing." The subtitle under it, however, is significant. "Broad Spectrum of Companies Will Bid To Participate in HUD's Plan To Produce Low Cost Homes.' The real hurdle is not technology, labor, land, or even mortgage money; but public acceptance. I think that this is the area of marketing and distribution that we have to take into consideration along with the product design.

So, if I can contribute anything today I will attempt to do so by adding another 5 percent, or call it the missing 5 percent, to the construction dollars that will have to be spent, to gain new product acceptance. Another 5 percent is necessary in order to provide the mass market that will make it attractive to manufacturers to develop and put a product on the market and then to convince the people that have to utilize it, as well as the customer, that it is a more satisfactory product.

I don't agree entirely with the builder's survey, that item for item new products must reduce cost, or be cheaper than the items which they are replacing. It is

the total system cost that is important; a new product can reduce cost elsewhere, even if one specific item costs twice as much.

But, the total industry is very complex and we always have a tendency to oversimplify. This is why it makes it difficult for committees such as A62 to try to come to grips with the problems. As I proceed, some of my comments may appear a little bit redundant and somewhat elementary, so I ask your indulgence. I want to excavate for the foundation before I put the roof on and move a customer inside.

I intend to discuss the need for the interfacing of the total fragments of the industry and not just the interfacing of the products. I think we have lived to see this, accelerating at an ever more rapid pace, during the past few years. We also feel that the marketing and preengineered product know-how, based upon experience in total marketing of preengineered building systems and their complexities, is a needed service.

I think that we have to look at the past and recognize some of the mistakes that have been made if we are to have validity in the future. Number one, we are seeing the same mistakes made over and over again. We are seeing everybody jump on the bandwagon and wave the flag because the President and the Kaiser Report said that we need housing. There is no doubt that we need it. We have needed it for years. We need better methods, but we have never fully established the systems already available, the marketing of those systems, and gaining acceptance for them in the climate in which we have to operate. I want to review past mistakes because I think that they have to be taken into consideration.

Number one, systems has been the word from 1967 on, but prior to that, from 1957 to 1967, preengineering was the word. When we carry it back further, before 1957, the word prefab was always used. Many in this room disapproved of it in 1957 and would never buy those "prefab buildings" because the word prefabrication meant industrialization and the building of components somewhere other than on the site and this was thought to be inferior.

It reminds me a lot of Cinderella, who sat behind the stove all dirty until the one night when she appeared at the ball. Today, all of us, from leading government officials down to the contractors, are running around like the prince, trying to put the slipper on the foot of things that have existed for years. I don't think we can ignore the past or advance into the future saying that everything we have done in the past is wrong.

I think there has been far too much emphasis on technology and production. This is part of the manufacturers' problem since they look at things from the standpoint of manufacturing and new technology. But, this new technology in many cases does exist. We do have fine products. In the past we have concentrated our efforts on sales and not total marketing. The essence of marketing is in concern with the total environment in which you have to make a profit. It is more than the production and fiscal administration of an operation.

I think that we have also been confused somewhat by the terminology of "open" and "closed" systems. Most of our experience in prefabrication has been with closed systems, the design of series of components around a very specific end-use purpose. Whether it be residential, industrial, or commercial, it makes no difference.

Another mistake is that preengineered building firms have considered themselves as manufacturers with responsibility ending f.o.b. plant. Actually, they are, and have been, only subsystem manufacturers and to make the matter worse, most of these firms have had uphill battles and have been undercapitalized. This too, is changing with the acquisitions and mergers that have been taking place.

The building product firms have a dilemma that you must recognize when you want to deal with them, and I am sure that A62, in working with system manufacturers, has recognized their problem as well. They have a great deal at stake. They have spent millions of dollars setting up existing distribution networks. They have invested other millions in their plants and equipment over many years.

In the past we have seen brand-name firms, which stand behind their products, come into being in our country. In construction we have to anticipate that this same thing applies; that responsibility cannot be f.o.b. plant and the manufacturer's responsibility has to include the installation and provide research and standards.

The whole industry is resisting change regardless of how we look at it. Even if the climate is right, social pressures are here, and it will take the concerted effort of all of the leaders of the industry. There will be resistance to change and with a failure to establish distribution at the local contractor level, as all of our basic industries have done, we will have a major problem.

He who controls the shell and controls the distribu tion of that shell, if we can predict the future, will control the sale of the other material. If he reaches enough volume, he is the man whose specifications the others, as parts manufacturers, will design to, because he is the one who can assure them of a market.

It is important to note that the whole purpose of a building starts with the customer. We have to look at the customer's budget; we have to know what the financing is; and we have to provide maintenance and continuing service for the life of the building. Guaran tees and warrantees have to be provided in a welldesigned, well-conceived, living or functional unit. Now, where does this customer go when he decides to buy a building?

He can go to an architect or to an architect-builder. He can go to a package builder, or, in many small towns, directly to the general contractor. Whoever he goes to will, in turn, have to deal with building product firms.

Building product firms are trying to market thousands and thousands of products and communication is very difficult. They can market by direct distribution. Some do. They can market through a dealer

network, or through a subcontractor. The subcontractor is a very important element in the specifications of products today.

The rest of the industry must be dealt with. Things such as the following must be considered: Land; financing; insurance; government; subcontractors for material and mechanical equipment; labor; investors; and arranging for leases and contracts. Today there is property management and the joint ventures of any one of these working together. The end result for the customers is to put it all together and obtain a building-promptly, efficiently, and at low cost, if the customer is to be satisfied with his purchase.

Even a small contractor working from his pickup truck has to be quite a manager if he is to stay in business. The industry is highly fragmented. Each of the groups is oriented in its own discipline. It has been a highly specialized fragmentation and there has been a lack of understanding and communication between groups. This is confusing to industry specialists and more so to the customer. If mistakes are made, whose fault is it? Whom do I call? Whom do I blame? Whom do I go to see to get results?

As far as I am concerned, the true manufacturer of buildings at this point in time, if manufacturing means delivering a finished product to the customer, is still the contractor. Demand and inflation have created a climate necessitating basic industry changes requiring total industry coordination. If it is to be coordinated, I think that the A62 Committee will have to move very rapidly because the industry is moving fast. If it performs the function that it can perform, it will have to move aggressively and not put this in staff conference for the next 5 years, because 5 years from now we will be talking about a horse of a different color.

The construction industry, exclusive of roads and public works, is the largest industry in the country. Residential construction alone is second only to the automotive industry. We saw Mr. Burton's film yesterday about how autos are made. There is always the comparison of any industrialization with automobiles. Autos are a finished product, ready for delivery to the customer, when they roll off the line for that final inspection.

In 1921 there were more than 500 automobile manufacturers-I think it was 522 to be exact. Where did they go? They complained-about financing, sales, and distribution, and government programing for roads just as we are complaining and looking for aggregations of land, service, and eliminating the customer resistance to change. The depression took many. But, the change only came to the automotive industry when some firms began to acquire others, and developed capital depth, improved management, and developed marketing with local distributors responsible for sales and service under firm discipline of the company. In other words, that industrialized system on four wheels went out to a local distributor organization that was fully responsible, knew the local codes, knew the local situation, and was in a position to furnish the customer's need and provide the automobile. Hence, we have the tremendous automotive industry today.

We should also look at the fact that the automotive industry became as big as it is and as efficient as it is, and reduced the cost of autos down to the working man's level but there are very few manufacturers left. Now what are some of the trends of which we should be aware? The essence of marketing is change. We, as leaders in the industry, if we are going to participate, must recognize change and condition the public for it.

Our fragmented industry seems to be becoming less and less fragmented. Architects are hiring engineers, and engineers are hiring architects. Both are becoming builders. Building firms are hiring all three. We have major capital coming into the industry. Realtors and land developers are diversifying. The insurance and financial institutions no longer want just a mortgage, they want ownership and participation. The insurance and financial institutions want to control their money for the long range investment and to see that it is properly managed.

General contractors find that more and more work is being negotiated and not bid. Such changes are significant and will have tremendous impact. The customer wants single-point responsibility. Because of this, the contractors are having a great deal more to say with reference to specifications and utilization of products. So, unless the customer and contractor can be made a part of the team for developing standards and acceptance, we can anticipate problems in marketing.

Everyone is playing with building systems-even government agencies which control large building segments. Mobile homes and sectionalized homes are the vogue. Low-cost housing is constantly talked about, but little action is taken because production and technology are not enough to beat the battle of inflation and the many profit centers now constituting the industry.

Finally, as far as trends are concerned, the average builder is just tired of keeping up with this present activity because our technological developments are accelerating very rapidly. The essential question each fragmented group must answer is "Where do we want to go?"

Opportunities abound in all directions. Now, let's look at what is happening. The customer is still there, the building is still his goal. We are beginning to see distribution patterns break down and overlap. The building product manufacturers are feeling the temperature of the water for systems. They have a great deal of money and experience at stake in the construction industry. They are willing to work with A62.

The price and application of materials is under attack. The methods of specifying are shifting. If we don't move as an industry, we can predict that the social and economic needs in this country, as in Europe, will force the government to take steps toward a more active role. Customer needs are being recognized. We can't just build a building-we have to determine the functional long-range customer requirements. Some firms are facing this dilemma, not all, just some of them. And finally, the social and economic

pressure upon the unions and codes are creating a more favorable climate for systems and their acceptance.

Now, concerning money, and the significance of it coming into the industry. I refer you to the June issue of "Automation in Housing." Over seven pages of fine print listed the mergers and acquisitions that have taken place in the last 5 years. It is very significant to note the firms that have moved into the industry. More significant, however, is the fact that many of the firms are not historically oriented in the construction industry. This, in many ways, could be good because such firms can be openminded in their approaches. They do not have to justify to the board or to the stockholders, why they declared certain machinery, tooling, or equipment as obsolete. The capital is coming in and the many profit centers are beginning to overlap and be merged. As the firms grow and merge, control and mass markets will come about. This is, you might say, the period for acceptance of systems.

Because systems manufacturing and development is a very complex and expensive program, proper planning is essential. Many of the firms already in the industry, and firms new to the industry, are putting acquisitions together. It is significant to watch patterns. This is being done because the industry is going to be a growth industry. Many anticipate that by 1975 there will be strong profit centers. Putting unrelated items together with proper handling could result in a situation where the best of all diverse acquisitions come together in systems, which means more profit. This can be done by either acquisition or development.

Presently uncommitted companies have an advantage by not having capital, tooling, and distribution channel paralysis. What is really significant, however, is the long-range objective of turning all into properly developed, profitable systems. Once achieved we will then have a situation where leadership and standards can come up with new opportunities not yet possible in the industry. It must be a full commitment if a firm elects to go this route. They will have to spend large sums in a very complex industry.

We mentioned 1,500 items that went into the auto yesterday. Well, the typical prefabricator today (and by the way, there are a few of those guys around, and they do have some experience) is coordinating an equal number of items in a home. So it takes a great deal of money. Either direct or dealer control at the local levels will be required for controlled distribution and sales projections to warrant the investment. You can come up with a better mouse trap, you can come up with any concept, any system, but unless you are assured of a certain repetitive volume it will not warrant the investment. So, you must begin concurrently with a product design, its marketing plan, and the longrange system programing to assure marketplace, customer acceptance and stable production.

Except for monumental projects, the architect, the engineer, and homebuilders are being overwhelmed by the accelerating changes in technology. The need is for simplification in construction programing and

design, necessitating the increased use of compatible preengineered component systems.

System's development is taking place (you can't pick up a trade journal, newspaper, or real estate section, that has not jumped on the bandwagon) and the time for us to move is now! Further growth in the industry, utilizing organized national programs, will enable the utilization of marketing techniques proven by all the major industries in the United States.

Firms that lay the foundations for such programs today will be in position to capitalize on the new potential that is being generated. But, there is a vital and most important thing for you to take home, if I can impart it. A true mass market that would justify mass production of systems calls for stability and predictable distribution under some long-term systems discipline. Such discipline is not found in the monuments, but is the building technology that underlies every building structure, no matter whether its function is that of housing, or whether it is a service function or a manufacturing operation.

Money and time must be spent to market any sys tem already developed or being developed. And we can't say that everything in the future is virgin. A great deal does exist! It is important that we evaluate what does exist and put our weight behind it and make it effective. We must do this, if for no other reason than the fact that the existing systems discipline has established some distribution, and this distribution network is in the marketplace today. It can be made effective if properly directed.

Instead of talking about joists or floors and so forth, we must talk about a complete foundation system or a floor system. Can you imagine the market potential if the builders in this country purchased the total foundation as a system. Forget the house, first look at the foundation system mass produced as the proper way to go. The market potential is staggering for the firm that moves in such directions. But regardless of how we talk about systems, it is important that we recognize that the change will be both revolutionary and frustrating. It will not be a crash program-there will probably be no initial saving, no magic formula for profit. It is going to be a very plodding, deliberate

program.

It is essential that we establish a long-term goal. and I think that this can be done by the A62 Commit. tee. The ultimate scope must be determined first and worked backwards. You cannot move from this point to that point in small increments and end up two-thirds of the way through, somewhere you don't wish to be. I think Michael Clarke said yesterday that in England they started their technical standards program and got to the point of function, and they then had to backtrack and move into the functional aspects of the program. All aspects of total scope must be considered before moving. Our sitaution today reminds me of a joke: As a plane was flying along, the captain's voice came over the loudspeaker with a word for the passen gers. "I have both good news and bad news. First. I am going to give you the bad news. Ladies and gentlemen, we are hopelessly lost. However, for the

good news, we are 20 minutes ahead of schedule." I think that this is our problem today. We are accelerating too quickly. We are not hopelessly lost, but I do think we have to put our feet on the ground and evaluate just where we are and what does exist. We must exploit those areas where the most progress has been made and begin to develop a system network maximizing the efficiency of contractor elements. I say contractor elements, they may not be the contractors we have today, but they are the people who will not be eliminated from the local site assembly process regardless of how industrialized we become. So, to the contractor who erects the building, perhaps this "one man's system is another man's component", will merely mean that the items to be assembled will be fewer but more significant.

We will still have local marketing, the distributor. and the contractor who at the local level will be an essential element of any team.

I think that we have to look at standards. Mr. Hughes has just covered the subject very well. We must move to subsystems as large as possible as basic as possible as basic components and then from there to standards for the total system. This would be my recommendation to A62.

I do think it is important that we understand exactly where we stand with reference to certain definitions. These are our definitions. Many of you may disagree. A preengineered building is one where the waste is left at some spot other than the building site. The components fit into place without cutting or fitting. A preengineered system, flexible enough to be adaptable to many different use functions, codes, and interior arrangements, would, in our terminology, be an opencomponent system. A preengineered building, tailored to a specialized end-use or market, and with a need for repetitive sales of a specific design is a closed component system.

A preengineered building manufacturer, essentially a firm or group of firms that have developed a marketing plan and a closely knit, well-informed sales and distribution organization, sells buildings of preconceived component design concepts. This does not mean an end form design, it means design within a component concept. Such a firm is essentially the coordinator of all components and parts, whether manufactured by the firm or purchased to its specifications.

When we talk about the contractor at the local level, he will be a contractor or builder approved and franchised by the preengineered building manufacturer or supplier. He can be directly "company owned" with a primary area of responsibility for the sale and construction of buildings utilizing some basic building systems or an independent controlled user of the system.

There is a great deal of feeling that nothing has been done in systems. In the industrialized and commercial areas today, we have some lessons to learn-particularly in the area of distribution. We should also look at the real direct impact a similar distribution program would have on the residential building field. Regardless of whether a building is residential, industrial, or

commercial, it is still a building. The only difference is that residential buildings come much closer to meeting the functional requirements of a housewife.

Some of the mistakes that we have to watch out for are: The lack of specific market research; design negligence; unrealistic pricing; not selling the financial lenders. In other words, even in systems you have to start somewhere to develop the brand-name image that you need. Other mistakes are: Advertising without an overall theme; failure to advertise at all; failure to recognize trend changes in the market; lack of professional sales management knowledgeable in the total construction process and not just a product; misunderstanding the total construction process; and neglecting the post sale followup.

Once a customer buys, he is the best salesman that you could possibly have. We get so wrapped up in technology that the customer is often forgotten. It is going to be his money that is going to buy or make the payment. Unless adequate consideration is given to the customer in the beginning, we can forget any program. It is the customer that has the building need.

I would like to touch briefly on the metal building industry. They have developed a distribution network in excess of 3,600 contractor-dealers throughout the country. They are so strong today that, regardless of brand affiliation, the dealers have formed their own dealers' association. If you look at the metal building industry very carefully, you will find the concept of "he who controls the shell . . ." It has organized engineering discipline and local distribution. With construction capability, such as the metal building industry has, an industry is able to achieve national marketing impact.

This industry should be looked at very carefully because it has been very successful. Metal buildings, for the last 4 or 5 years, have increased in number at a rate of 25 to 30 percent. Today they account for 12 to 13 percent of the total industrial and commercial sales of single-story structures within this country. Many firms are introducing two-story structures which would have been unheard of 2 years ago. They are able to do this today because their dealers have gained such a foothold in the community and they negotiate sales. In other words they have become a contractor with a sales force.

Essentially, the metal building industry today consists of organized preengineered systems programs with manufacturing capabilities, industrialization, and the marketing tools to support the local contractor and the building manufacturer.

The future of any system will involve turnkey buildings. The customer will want and demand total design, contracting, and service responsibility. Firms that move in that direction will find that they have taken a step toward success. All systems and the materials discipline must find their own niches. There is no such thing as an all steel program, an all concrete program, and all wood program or an all plastics program. Each of the materials have certain functions which they can best perform.

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