Building homes in 12 markets at once could be a logistical challenge, but not for M/I Homes Inc. The Columbus, Ohio-based homebuilder has just entered the Austin, Texas, market, and relies on a combination of decentralized purchasing by its divisions and centralized purchasing when appropriate to operate efficiently and successfully.
“Each division selects, evaluates and hires its own vendors,” explains Larry Sekely, M/I’s vice president of national accounts. “The framing carpenters, insulating companies and drywall companies are all independently hired by each division.”
Most of M/I’s building materials are also purchased directly by the divisions. But there are certain products that are used in multiple divisions or all divisions within the company. That’s when Sekely gets involved. “Appliances, paint, locksets, faucets and many other products can be purchased in volume,” Sekely explains. “Our buying power results in significant savings that we pass along to our customers.”
Before becoming vice president of national accounts, Sekely was vice president of purchasing for the Tampa and Orlando markets, which prepared him well for his current position. Sekely attributes the success of M/I Homes to knowing when to use its centralized buying power and when it’s wiser to put decisions in the hands of the divisions.
“Our senior management team works with our divisions on key decisions,” Sekely says. “We recognize that every division is unique, and they’re given the flexibility to do what is best for the customers in their markets. Since we were founded on the principle of ‘treating the customer right,’ we let the people who know their customers best have input on everything from design to land to location. That’s why you’ll see different M/I floor plans in different M/I markets. It’s all market-specific and market-driven.”
More Than 80,000 Homes
M/I Homes was founded in 1976 by brothers Irving and Melvin Schottenstein and has built single-family homes for more than 80,000 customers. Robert Schottenstein, Irving’s son, is CEO, but the company no longer is family owned. Its homes are marketed and sold under the trade names M/I Homes, Showcase Homes, TriStone Homes and Triumph Homes.
The company has homebuilding operations in Columbus and Cincinnati, Ohio; Chicago; Indianapolis; Tampa and Orlando, Fla.; Austin, Houston and San Antonio, Texas; Charlotte and Raleigh, N.C.; and the Virginia and Maryland suburbs of Washington, D.C.
Another distinct advantage for M/I and its customers is M/I Financial, the company’s wholly owned mortgage company, and M/I Title Agency Ltd., L.C., which titles homes in Florida. “M/I Financial works hand-in-hand with the construction and homebuilding portion of the business,” Sekely declares. “A very high percentage of homes are financed through M/I Financial.”
M/I Financial offers conventional mortgages, a streamlined refinancing mortgage through the Federal Housing Administration (FHA) and a Refi Plus refinancing mortgage for homeowners whose home values have dropped, plus FHA and Veterans Administration mortgages.
M/I Homes built in Charlotte, Chicago, Maryland, Orlando, Raleigh, Tampa and Virginia are Energy-Star-certified. All M/I homes in these markets are built to stringent Energy Star 3.0 standards and evaluated by a third-party inspector to arrive at a Home Energy Rating System (HERS) Index. A home built to code will earn a HERS rating of 100. M/I homes, on the average, earn a HERS rating of 70, which means these homes will cost 30 percent less to operate than a home built to conventional code.
M/I incorporates a whole-home approach into its designs, combining energy-efficient features such as insulated low-e windows, upgraded insulation and efficient HVAC systems with “green” features. “We pay close attention to the details behind the walls,” Sekely adds.
The company uses a construction scheduling software system that can notify contractors and vendors of the schedule for each building on which they are working. It coordinates the efforts of purchasing, construction and accounting departments so they can collaborate with supply chain managers in real time. This enables M/I Homes to manage its construction projects more accurately, efficiently and quickly with less effort.
Electronic scheduling in the software allows just-in-time delivery of goods and services and handles purchase order acceptance, changes and cancellations. It integrates electronically with M/I Homes’ back-office system, and communications are instantaneous from anywhere that has an Internet connection. The software also provides payment information.
Material Costs Up
As the economy improves, Sekely is seeing an uptick in materials prices. “With demand beginning to pick up – particularly in the lumber side of the business – costing issues are becoming apparent,” he observes. “But in spite of increasing volume, a lot of manufacturers are still hesitant to make the commitment to bring on additional personnel, waiting instead to see if the growth is sustainable. They’re playing it quarter-by-quarter. This will have an effect on material availability and price.”
These labor and availability shortages at manufacturers and suppliers contribute to the materials price increases that Sekely is seeing. “From a costing standpoint, pricing is up on major components, such as lumber, drywall and roofing,” he continues. “As costs on these items increase, home prices will be affected.”
M/I Homes does not stockpile materials when prices are low. “As a builder, we don’t inventory material,” Sekely emphasizes. “Everything is on a house-by-house, lot-by-lot basis. Our various vendors may have a certain degree of inventory, but we don’t have it onsite. Primarily, we build to order. We communicate projected starts with each of our vendor partners so they may anticipate their own material and labor needs.
Availability Is a Concern
Availability of materials also can be a problem in the supply chain, but not for M/I Homes. “We haven’t seen that as of yet,” Sekely stresses. “We’ve had little or no disruption. Because the market has been fairly soft over the last few years, we’ve been able to obtain everything we need up to this point. But we probably will see more of a disruption as volume increases in the industry.”
For some companies, pricing and availability of construction materials were a problem during the boom times that preceded the economic downturn. “The supply before the recession was at a peak and prices were high,” Sekely asserts. “Then the market softened, and everything turned upside down.”
It did have an effect on M/I Homes. “Our vendor base was significantly reduced,” reports Sekely. “We used to have two to four vendors per trade, based on the volume of each division. We actually took it down to two or even one to cover an entire division.”
M/I Homes employs a Confidence Builder Program for its customers that features checks and accountability features to ensure customers are receiving a quality home. This program is personalized for each division.
It includes energy-efficient systems, a 30-year transferable structural warranty, a guaranteed completion date, a personal construction supervisor, a quality control card, guaranteed completion of pre-settlement items, a new home orientation and service after-the-sale through a one-year customer service program.
“It’s all designed to give the customer enough confidence in the process to make it stress-free and enjoyable,” Sekely says. “After all, getting the home of your dreams should be fun. Our Confidence Builder Program is designed to do just that. M/I has an excellent reputation for building quality homes and taking care of our customers. We treat vendors, employees and customers with the utmost professionalism. It’s an honor to work here.”
Sekely sees expansion in the company’s future. “We’re looking to expand into successful markets that are a good fit for the way we do business,” he says.