Southern Home Developers Case

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Southern Home Developers


1. List the company¡¦s strengths and weaknesses


Southern Home Developers is a small manufactured home producer located in rural Arkansas. The list below outlines the primary strengths and weaknesses


Strengths


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„X Southern Home Developers has a competitive advantage of providing a low price and short turn around for new home consumers.


„X The owner, Bill Thompson, has several years of experience in the modular/mobile home industry and in new business start-ups.


„X Southern Home Developers has a low number of staff, seven in all, who are cross-trained in all aspects of the production and construction phases.


„X Southern Home Developers has a proven track record of meeting a four week delivery on a standardized modular home.


„X Southern Home Developers is fully diversified in the value chain and relies on few, if any, other suppliers to meet their customer¡¦s needs.


„X Southern Home Developers is in a growing industry with continued growth projected for the future. Project Outlook survey forecast that houses manufactured off-site would be used extensively and that the number of on-site construction hours would be reduced by at least 50%


„X In 16, new home sales reached all time high.


„X Few major competitors in the market or in the 50 mile radios of the plant.


Weaknesses


„X Southern Home Developers is located in a rural area which is not densely populated¡Xlimiting the number of potential consumers. Industry information shows most customers live in a 50 mile radius of the plant.


„X The owner serves as the salesperson, plant manager, and owner. If something happens to him the business would be seriously damaged.


„X The owner¡¦s wife is responsible for all interior finishing with no back-up support.


„X The Nation¡¦s aging workforce trend shows that 55+ year old workers will be the fastest growing segment. This will impact the trade industries which rely on younger workers.


„X Currently, the company suffers from low morale.


„X The new customized product has not been planned well financially or in the production facility. The new product was also not communicated well with the staff.


„X Southern Home Developers has a poor understanding of the local housing market, or they would have anticipated the need for customized housing options as opposed to a standardized design.


. Describe the firm¡¦s external environment.


There are approximately 500 modular housing factories in the United States. Most employ less than 100 people. The large competitors are


„X All American Homes ¡V Elkhart, Indiana


„X Cardinal Industries ¡V Columbus, Ohio


„X Chadwick International, Inc. ¡V Fairfax, Virginia


„X Ryland Group, Inc. ¡V Columbia, Maryland


„X Westchester Modular Homes, Inc. ¡V Wingdale, New York


There are not any major competitors in Arkansas, in fact, the closest major manufacturer is several states away from Southern Home Developers.


The industry data is included in the strengths and weaknesses. This data indicates a strong outlook for the industry, although caution is recommended as the market for housing sales is becoming depressed.


Other significant environmental information include


„X Arkansas unemployment was among the highest in the Nation in 16 at 5.1%


„X Cost for building a modular home averaged $7.41 per square foot compared to site built homes cost of $54.65 per square foot.


„X Industry shipping costs range from -5% for modular homes.


. What type of market research do you think was conducted by Thompson?


Bill Thompsen began Southern Home Developers with a small business grant, it is highly likely that the grant required him to prepare a business plan, complete with market research and projected earnings. These projections were based on a macro-industry analysis, including


„X Projected 17 number of manufactured homes in United States equals 75,000.


„X Thirteen percent of housing units in Arkansas are mobile per the 10 census.


„X 1 American Demographics described the mobile home consumer as


„X member household


„X less likely to have a college degree


„X medium income of $0,06


„X headed by young adult (18-4 years of age)


„X affordability is dominant reason for purchase


„X One in three single family homes sold in 16 was factory built. This is an increase from 1 in 4 in 10.


„X Household incomes were not keeping pace with housing prices in 16.


„X Housing starts up 16% from 10 to 15, but relatively flat from 10 to 15.


„X Demand for new and existing homes influencers are


„X Personal disposable income


„X Economic events


„X Demographic trends


„X Social attitudes toward home ownership


„X Affordability


„X Work related events


„X The segment of 5 to 4 year olds was expected to decrease 4 million in this 10 year period, this decrease may impact mobile and modular home sales.


4. Is this the type of research you would have recommended, why or why not?


The macro level market data is very important and relevant to new business start-up planning. I recommend micro or local level research in addition to the industry level research. Specifically, I recommend research in the areas of demographics for the 50 mile radius surrounding the plant, a thorough analysis of the local housing market would be essential. The following types of information should have been compiled (for a 50 mile radius surrounding the plant)


„X Housing starts for past 10 years by quarter and by category (site built, modular or mobile)


„X Demographics


o Average household size


o Medium family income


o Unemployment rate


o Average cost of house


o Projections for age segment growth


o Projections for job growth and economic development in target market area


I would also recommend some specific surveying of the local market consumers who were considering purchasing a new or existing home. Key to this case, Southern Home Developers should have more closely studied the increase in time and costs associated with customized homes. They should have built model customized homes to determine actual construction requirements, prior to setting pricing, schedules and taking orders.


Not related to market research, but just as important, is the manner in which Mr. Thompsen communicates with his employees. The case leads one to assume that the communications are not adequate to maintain a motivated and loyal workforce. I recommend that Mr. Thompsen review his strategies with his staff to gather input and opinion prior to making important business decisions.





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