The construction startup is taking vertical integration to new heights.
When Kodak was at its peak, it liked to control everything in its supply chain. They even had farms full of cows to ensure a supply of gelatin. Henry Ford tried to build a city in Brazil, Fordlandia, to supply rubber.
Such vertical integration, the desire to control every aspect of production, went out of fashion in business circles; subcontracting to others meant that one could build a leaner company, buying what was needed, when it was needed, from the cheapest source, instead of owning everything.Historically, the construction industry has been run like that, with almost the entire building process subcontracted, from the design and engineering professionals to the different trades on the job site. A good example is the Trump Corporation, which claims to have built a lot of buildings, but has about twelve employees.
Construction startup Katerra is trying to change all that. We have noted before that Katerra is shaking up the construction industry, literally and figuratively, with their attempt to bring Silicon Valley thinking (and money) to the construction industry. Their pitch:
Katerra is bringing fresh minds and tools to the world of architecture and construction. We are applying systems approaches to remove unnecessary time and costs from building development, design, and construction.
They are not only investing in factories to build wood frame buildings, but are now in the plumbing and electrical businesses. They are buying architecture and engineering and construction management firms, and today they have announced that they are building a 250,000 square foot factory in Spokane, Washington to crank out our favourite building material, Cross-Laminated Timber (CLT). From the press release:
“CLT is perfect for Katerra in that it’s a material that creates beautiful spaces, is designed for manufacturing, and is sustainable all at the same time,” said Michael Marks, chairman and co-founder of Katerra. “This material represents a great opportunity to create new value within the construction industry and will be central to many of the projects we’ll be designing and building. We feel very comfortable and excited, particularly with the knowledgeable team we have, to make the jump into manufacturing mass timber. We are ready to help bring mass timber to the mainstream of U.S. construction.”
According to Becky Kramer in the Spokesman-Review, CLT “can be made from the small-diameter trees crowding Eastern Washington forests, which foresters are eager to thin to reduce wildfire intensity.” One of the founders of Katerra, Fritz Wolff, is from Spokane and his family runs a development company there.
Traditional building construction is mired in processes similar to having a custom-made, or “bespoke,” shirt sewn by a tailor or ordering a one-of-a-kind automobile, Wolff said.
For Katerra’s customers, choosing a building is similar to ordering a new car with custom features, Wolff said.
“We’re taking a controlled manufacturing approach to construction versus a bespoke approach, where every building throughout the world is (one of a kind) with no repetition,” he said.
As I noted in an earlier post, I really want Katerra to succeed. The current construction industry model doesn’t work very well or efficiently. I have certainly always made the case that prefabrication is one of the answers to the problem of the industry; that is why I worked in it. What I am saying in this post isn't too different from what I have said earlier, except now we have added CLT to the mix, and now we have Mr. Wolff's analogies, which are problematic.
When it comes down to it, a building is much closer to a bespoke suit than it is to a car. If buying a building was like “ordering a new car with custom features” they would all be roughly the same size, every city would have the same zoning bylaws and parking requirements, you could park them anywhere in a moment, and you wouldn’t have NIMBYs.
Instead, it is indeed like a bespoke suit; you have to spend hours with the customer to make it fit each and every body. Even though it might be the same basic materials and patterns, every one is different. And every client wants their own special thing, their own little details that make it different. That’s why they cost so much. That’s one reason buildings cost so much.
On the Katerra site, they say that “through its end-to-end construction services model, Katerra will supply much of the CLT to projects where it will also serve as architect and contractor.” Now that they are making their own CLT, they are also their own supplier, vertically integrated like George Eastman and Henry Ford, right back into the forests around Spokane.
I worry about this. I worry about the end-to-end model; sometimes you do better getting fresh ideas from a different architect; sometimes you might want to use a different material. But when you have so much invested in particular people and technologies, I worry that you lose flexibility.
A good example can be found right on the Katerra Mass Timber page, where they show a photo of Michael Green’s T3 building in Minneapolis. It was originally designed to be built with CLT but in the end, they went with Nail Laminated Timber (NLT) instead because it was easier to get approvals and was cheaper and faster to get. Will Katerra have the flexibility to pivot to NLT when they have just invested millions in CLT? Or are they handcuffing themselves into a single source of a single product?
Of course, the other side of the coin is that right now, CLT is really expensive in North America because of supply shortages. When these new factories come online the price and availability might change so that it becomes the fastest and most economical way to build. And if any industry needs a bit of new thinking, it is the whole building industry, from forest to finished product.
So I will say it again: I want Katerra to succeed, but a building is not a car; it is not an iPhone. It’s a building. I don’t know if it can handle so much disruption.