Unleashing the Potential of Backward Integration in Real Estate

Harish Babu, CEO - Interiors Division, Sobha Ltd, in an interaction with Industry Outlook, shares his views on backward integration of supply chain in construction, being innovative while backward integrating, ensuring end-product quality, and more. 

As we move into a post-pandemic world, one way to build resiliency in the supply chain has been via backward vertical integration. How do you see this trend taking shape in the construction industry of India?

Sobha’s backward integration model has helped deliver projects in time and quality. What this model also helps in is scaling and having better control over input costs as the procurement team has better understanding and relationship with its suppliers.     

For the industry to adopt this model, it is important to establish and follow processes that ensure competitiveness. This requires well-trained and skilled teams who can execute well. How much the industry can address these critical factors is something they need to address. It does take time, experience and the willingness to change to make this model a success.

Having in-house expertise that enables a company to take control of quality and progress of a project becomes imperative as it contributes in maintaining a certain standard one has set and continues to deliver on those terms. Real estate players have come to realize how important it is to have such a model in place and are working towards building in-house capabilities that assist and empower them in the long run.

Sobha being a pioneer in adopting a complete ‘backward integration’ business model has been able to deliver optimum quality-value-time-price performance in its offerings. This enables us to manufacture and produce various construction products. The unique and inclusive model ensures that external challenges like compromising with the quality aspects do not hamper project delivery timelines.

We have three different state-of-the-art manufacturing units viz. concrete products division, glazing & metal works and Sobha Interiors which are directly related with our real estate construction business.

We manufacture a wide variety of products including wooden doors, concrete blocks, pavers and kerbs to structural glazing, aluminium doors to pre-engineered buildings, furniture such as kitchen, wardrobes, home & office furniture and items catering to the interiors. These are high performance products that come with superior quality.

With multiple ongoing productions on the line, the capacity to innovate and research is often sacrificed. At times, existing competencies need to be sacrificed in order to develop fresh core competencies. How can businesses be innovative while backward integrating its supply chain?

While certain challenges exist in having a model such as Backward Integration, it also comes with a set of benefits and advantages that helps a company in consolidating its overall process and operations.

At Sobha, we have set several benchmarks since its inception. Through a backward integration model, Sobha has ensured sustained, consistent and top-class quality of its offering.

Through this vertical integration model, the company has been able to control and maintain high international quality, ensuring the right material and processes are used. One of the more recent developments we have made is adapting to pre-cast technology, that helps reduce delivery times by close to 30%. The Dream Acres project in Bangalore is a case in point where we adapted pre-cast technology to create one of the largest properties in India, envisaged to have approximately 7000 flats spread over 81 acres, in the fastest possible time.

Leveraging technology has also been a key driver to ensure quality, timely completion and reduce wastages. Using a simple QR code, we have cut down any form of wastage and costs associated with installation of pre-cast slabs that we make in hundreds each day.

Every team has to collaborate while ensuring costs, value, quality, reliability and overall aesthetic appeal of products is addressed. This requires everyone to be aware of challenges that each team faces. One can’t afford to have all the grandeur in a product while making it challenging to procure the right material and construct in quality and acceptable time period.

While designing products, one needs to look at various aspects of design and engineering since it is at this stage that costs are determined. Innovation in design and engineering is one of the more important aspects that affect supply chain – the ability to source at the right price and in time.

Backward integration often edges out the competition and sets much higher barriers to entry. As a result, there is less incentive to keep the standard of production high. How can the quality of the end-product be maintained?

A model such as this allows a company to build in-house capabilities that play an integral part in delivering international-quality products. Our expertise is in manufacturing products including concrete products, metal & glazing solutions, wooden doors, interiors, and mattresses. We, as a brand, rank high on the customer preference index for our residential products while our presence in commercial segment is limited by choice.

At the same time, skilled and trained manpower are often required to deal with certain materials and processes, which Sobha ensures are available through its inhouse Sobha Academy. The academy trains craftsmen in laying tiles, granite masonry, gypsum works, water-proofing, electrical and plumbing works. All engineers and supervisors of execution, planning, costing, quality and safety are provided in-depth training on different modules.

Moving forward, how beneficial will backward integration be in the ever-changing real estate industry?

The success of backward integration lies in strong processes and operational discipline. Most of the variables are in the control of the organization, barring a few like commodity prices, demand and supply and other macro variables. However, a case in point is how well can the purchase department negotiate on costs, source from reliable vendors, ensure the availability of material at the right quality and right time is an area that is still dependent on a function internal to an organization.

Once the processes are set and followed with rigor, the model works beautifully, especially when one has to scale up. With increasing demand in luxury residential space and commercial, we see this model being an advantage.