This case study was developed and published in 2002 after our successful SAP implementation. Cavalier was a public company at the time falling under all SEC disclosure rules associated with publication of financial and performance data.
2. FUELING MARKET SHARE
GROWTH BY ENHANCING
PRODUCT VALUE
SUMMARY
AT A GLANCE: mySAP ENGINEERING AND
TM
CONSTRUCTION AT CAVALIER HOMES Cavalier Homes is a leader in the manufactured homes industry.
The company engages in the production, sale, finance, and
Strategic Goals:
insurance of manufactured homes. Its homes are completely
• Increase market share, particularly in the high
pre-built at the factory and deployed at individual sites, ready
value segment
for occupancy.
• Become the lowest cost producer for all value points
served by achieving economies of scale across diverse
Cavalier Homes was founded in 1984 as a manufactured home
operations
builder in Alabama. Over the subsequent thirteen years, the
• Enhance revenue opportunities in existing customer
company realized a high rate of growth, driven by acquisitions
base
and increased demand for its core products. Cavalier Homes is
• Improve efficiency of service operations
publicly traded on the New York Stock Exchange under the
symbol “CAV,” and in 2001 had revenues of more than $360
Approach:
million and about 2500 employees. The company builds homes
Cavalier Homes analyzed the full cost of each finished under eleven brand names at fourteen manufacturing facilities.
model sold and conducted customer focus groups to priori-
Homes are sold through a network of over 800 dealers in the
tize requirements. The company thereby developed simplified
South Central and South Atlantic regions of the United States.
product offerings that provide greater value and decreased
manufacturing costs by rationalizing raw material parts and
Cavalier Homes operates in a highly competitive industry.
streamlining operations. This approach was enabled by
mySAP™ Engineering and Construction (mySAP™ E&C) The company must compete on price, quality, and service to win
solution capabilities in sales and distribution, service customers. Cavalier Homes competes with others in the manu-
management, materials management, production planning,
factured home industry as well as with companies that provide
procurement, and accounting.
substitute offerings such as apartments and condominiums.
Results achieved over the period 4Q99 to 1Q02
The manufactured housing industry is influenced by many of
include:
the same economic factors that affect the housing market as a
• Reduced number of home models sold from over 800
whole. In particular, the industry is cyclical. During much of
to 140 and achieved prices of $4000+ lower than the
the 1990s, the manufactured home industry saw substantial
competition in key segments
growth, which was driven by favorable lending arrangements
• Improved market share from 4.6% to 7.6%; increased
and a proliferation of retail outlets. This led to many new
home shipments by 15% while industry shipments
entrants into the home manufacturing business, an increase in
declined by 21%
production capacity, and an expansion of wholesale shipments.
• Lowered raw material inventory levels from $4.2 to
Ultimately, these trends led to the slower retail turnover, higher
$2.1 million and improved turns from 1.0 to 4.7 per
month at a key manufacturing facility; reduced dealer retail inventory levels, and increased price competition that are
inventory by 10.4% to $171 million
• Lowered production hours per home by 20% and
reduced production and administrative workforce by
40%
• Positioned the company for more efficient collaboration
with suppliers
3. characteristic of business cycle downturns. Moreover, the enabled the company to offer homes that satisfied consumers,
industry had also been affected by an increase in dealer failures, were priced lower, and thus sold well. In order to execute order-
a reduction in consumer credit, and an increased repossession to-delivery, procurement, and other processes in its new
of homes that, in due course, reentered distribution channels. business model – and manage the associated data for decision-
The net result was that the number of industry home ship- making purposes – Cavalier Homes selected mySAP™ E&C as
ments declined by 44% from 1998 to 2001. the solution which had the most robust capabilities to meet its
needs.
In the mid-1990s, as the market continued to grow, Cavalier
Homes realized that its business operations were costly relative “The SAP solution gives us the ability to view costs all the way
to the competition, preventing the company from adapting through the value chain,” said Jay Wilson, chief information
quickly to emerging consumer demands. The company’s officer, Cavalier Homes. “That information, combined with
growth through acquisitions and a decentralized management after-sale data, has enabled us to simplify our product offering.
structure had left each manufacturing facility operating inde- We have been able to make configuration changes to reduce the
pendently. Each plant designed floor plans, procured raw mate- number of raw material parts, lower service costs, and improve
rials, manufactured and sold homes on its own and did not cash flow. We are producing products that have far superior
coordinate with other areas of the company. Each facility had standards and options than before – and our customers pay less
independent processes and information systems, and business than they would to competitors whose products offer less.”
decisions at the corporate level could not be made easily.
OBJECTIVES
To compete effectively, Cavalier Homes realized it must achieve In the late 1990s, Cavalier Homes foresaw that it could have
lower operating costs and the ability to better satisfy demand. future difficulties in achieving market share growth and sustain-
Addressing these requirements became more critical as the ing a competitive cost structure. The company was unable to
industry experienced a downturn in the late 1990s. The com- adapt production processes cost-effectively according to chang-
pany charted a course that started with understanding ing customer demand, due to a lack of standardization of busi-
customer needs and creating high-value products that would ness processes and raw material parts across the company.
most effectively serve consumer demand. Through this Cavalier Homes’ market share began declining gradually in 1996.
approach, Cavalier Homes was able to reduce the number of The company was designing and producing homes quickly, but
standard items and options in its homes and eliminate the cost largely on an ad hoc basis as demand for specific floor plans sur-
and complexity of maintaining a high number of raw materials faced from retailers and end-consumers. This business approach
across its brands. across its brands led to a proliferation of more than 800 unique
home models and more than 12,000 raw material parts. The
While the product development cycle became more deliberate company’s balance sheet assets and retail distribution channel
and lengthened from a few days (during which ad hoc require- inventory levels were growing, and operating costs for both
ments had been met) to several months, the new approach manufacturing and service were not in line with competitive
4. requirements. Moreover, the company had no perpetual inven- IMPLEMENTATION
tory process implemented: Therefore, a lack of visibility into In 1998, Cavalier Homes initiated a detailed evaluation of its
operations and poor accuracy of data inhibited Cavalier Homes’ current operations to determine how to best satisfy customer
ability to operate cost-effectively. needs, reduce costs across its diverse operations, and grow
market share. Even though Cavalier Homes wished to retain
Given the market share decline, increasing operating expenses, its many brands, the company recognized that process
and emerging downturn in the manufactured homes market, standardization, data-based decision making, and reduced
Cavalier Homes’ objective was both to reduce costs and improve variation of home models and raw materials would be key to
the value that the company provided to customers. The com- realizing its goals. In the fall of 1998, the company selected
pany sought to increase the value of its home models by reduc- SAP® R/3® (which was subsequently licensed as mySAP E&C)
ing the variety in its product offerings. That is, through an to enable standardization of business practices, provide visibility
understanding of the demands that were most common to all into operations, and enable a clear view of performance
customers for floor plans, cabinets, fixtures, drapes, and so metrics. The plan called for a phased, sequential rollout to
forth, Cavalier Homes could reduce overall costs by settling on each manufacturing facility.
the most valued – and generally the highest quality – standards
and options. In 1999, implementation at the first two manufacturing plants
began, and these initial efforts highlighted the need for cus-
In this way, the company could simplify its operations, stan- tomer input regarding finished home model configurations.
dardize processes across brands to the extent appropriate, and Cavalier Homes thus created a more deliberate product devel-
minimize its raw materials inventory. Moreover, this approach opment process, soliciting customer input through focus
would enable Cavalier Homes to collect meaningful data that groups to understand the most valued home attributes.
would support continual improvements in its efforts to reduce Customer input, coupled with data from the mySAP E&C
manufacturing and service costs while effectively serving its sales and distribution database, enabled the company to
customer base. The company’s goal was to be well positioned determine which were the most popular floor plans. The SAP
for the next cyclical upturn and achieve a measure of profitable variant configuration capability was used to further analyze
growth as long as current business conditions continued. the bills of material (BOM) covering these home configura-
tions. Using this information, the company limited the home
models and options offered to those that were expected to be
in the greatest demand. Cavalier Homes was thereby able to
reduce the number of raw material parts from more than
12,000 to less than 1,800 and reduce the associated cost of these
raw materials.
5. The company also streamlined business processes for order traversed by these vehicles. Cavalier Homes also lowered the
fulfillment, manufacturing, and procurement. Use of average service cost from $1,150 to $250 per home for one
mySAP E&C production planning capabilities has been model in the initial implementation covering this service cost
central to improving execution of these processes. Each house reduction approach. Also, the company is using the data in
has an associated BOM with as many as six levels: One level is BOMs to compare and analyze the efficiency of its manufactur-
assigned to rooms in the house and other levels are assigned to ing facilities. The company is identifying differences in raw
specific subassemblies such as the roof, kitchen cabinets, and material usage and engineering specifications in order to work
electrical system. The materials and quantities required for toward even more standardized products and processes and to
building the portions of the house are entered into the BOM further reduce the cost of its homes. The company is using data
from the diagrams drawn by the engineering divisions for each in mySAP E&C for many other purposes, including reducing
model. When a sales order is entered, the SAP variant configu- order backlogs and evaluating profitability at the customer
ration capability is used to select materials according to the level.
specifications in the BOM and the options selected in the order.
This approach has enabled a reduction in the time required to By early 2002, the implementation of mySAP E&C had been
determine the cost of a home from about two days to a few completed for all of the company’s financial operations and
minutes. Moreover, this system enables visibility into material at four key manufacturing plants, representing 60% of the
requirements for scheduled orders, facilitates procurement company’s production capacity. Upon completion of the
planning, and ensures greater inventory accuracy through mySAP E&C implementation at the remaining ten manufac-
relief of materials in the system following production turing facilities, Cavalier Homes will have a solid foundation
(backflushing). As a result of more precise operational data, for further business process enhancements.
Cavalier Homes has reduced its financial closing cycle time
from seven to two days. In the future, Cavalier Homes expects to implement collabora-
tive processes with its suppliers. This initiative will provide it
As the implementation progressed, Cavalier Homes created with opportunities to further reduce raw material parts costs
databases that enable ongoing process analysis and lead to and offer better value to its customers. Also, the company
expects to install mySAP™ Customer Relationship Management
continual performance improvements. For example, the com-
(mySAP™ CRM). This will allow the company to market new
pany used data from the mySAP E&C service management
capability to analyze post-sales service operations in a key home service, financial, and insurance products to its installed
region. The company reduced administrative cost of service base of home owners. Such an initiative will increase high
operations by $2.2 million in this region by consolidating margin service and financial product sales, and will better
service warehouses from four to one, reducing the number position Cavalier Homes as a full service provider of
of service vehicles deployed by 42%, and reducing the mileage manufactured homes.