2022 Industrialization Update: Evidence & Projections

The most notable continuing trends toward Industrialization of Construction® include new horizons for prefabrication, logistics, and data-driven approaches to job, project, and business management. Although construction has only been on this pathway for less than three decades (which took other industries a century or more), it’s moving toward the goal of reducing the cost of shelter and infrastructure.

This article provides an update on where the industry stands with industrialization — including metrics, supporting standards, and specific examples and evidence — and covers the novel approach of Integrated Material Logistics Solutions (IMLS®), which is beginning to gain traction among a few suppliers and will be required to get to the true construction megacenter approach (as introduced in “Industrialization: Is Construction Next?” from the January/February 2020 issue1). To see where your company stands, take the Industrialization Litmus Test at forms.gle/9P9dMkXY63Xp7bh1A.

Industrialization: Where the Industry Stands

As first presented at the National Electrical Contractors Association (NECA) Convention in 2010 by Dr. Perry Daneshgari, there are five steps that all skilled-trades-based industries go through to expand and evolve toward industrialization:

  1. Managing Labor
  2. Managing Work
  3. Lean Operations
  4. Modeling and Simulation
  5. Feedback From the Source

In 2020 research on the topic,2 the indications of industrialization were captured in three key metrics: labor cost per dollar sold, consumer expenditure as a percent of income, and workforce transition (expanding to secondary and tertiary roles from the primary skilled trades).3

In 2022, these metrics indicate that Industrialization of Construction® is continuing, but based on studies of similar indicators in other industries that followed the same path, there is still much to overcome in order to catch up with other industrialized sectors.

Labor Cost Per Dollar Sold

Exhibit 1 depicts an update on labor cost per dollar sold through 2020, reflecting how much an industry sector can produce with its reliance on labor. Once an industry goes through steps 3 and 4 of industrialization, it requires less tacit knowledge from the skilled trades to produce the same output.

Exhibit 1 also shows that in electrical construction (and construction overall), there was movement in the right direction in 2020. However, when compared to agriculture and manufacturing (where the labor cost per dollar sold is less than $0.15), construction is still behind. Getting caught up starts with the Industrialization Litmus Test (forms.gle/9P9dMkXY63Xp7bh1A), where an organization can determine how much of its decision-making is left to the jobsite environment and labor force.

What’s Next?

The industry must continue to look ahead at the work and business practices required for steps 3-5, while ensuring that managing work and managing labor is a staple on construction sites and within contracting businesses. In addition to the data-based evidence previously mentioned, the following are four examples of forward movement.

The Traditional Model of Contracting Is No Longer Effective

The traditional operational model of construction contracting is a simple one-job-at-a-time approach (Exhibit 2).4 Little to no data is required to operate in this business model; all that is needed is access to skilled tradespeople and payment.

In the most traditional state, estimates are done on legal pads; office employees and PMs typically come from the field (except for the accounting department), and the owner/President/CEO determines in the last month of the year if the company has made money. After working with thousands of contractors for three decades, MCA, Inc. has seen fewer companies starting from or surviving with this model.5

Survivors have moved into a transition model, where the transition doesn’t happen by itself; “due to attrition or conscious decision of the owners, [they] are in the process of changing from traditional to professional.”6

The operational model is independent of size. Many larger and legacy trade contractors still operate traditionally, relying on strong field superintendents and rigid accounting controls to strengthen the lack of connectivity to the work environment and sources of variation in project outcomes. 

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About the Authors

Dr. Heather Moore

Dr. Heather Moore is the Vice President of Operations of MCA, Inc. in Grand Blanc, MI. Her focus is on measuring and improving productivity. A previous author for CFMA Building Profits, she holds an Industrial Engineering degree from the University of Michigan and a PhD in Construction Management from Michigan State University.

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Dr. Perry Daneshgari

Dr. Perry Daneshgari is President and CEO of MCA, Inc. in Grand Blanc, MI. MCA focuses on implementing process and product development, waste reduction, and productivity improvement of labor, project management, estimating, and accounting.

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