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Vol. 34, No. 6, NovemberDecember 2004, pp. 442450issn 0092-2102 eissn 1526-551X 04 3406 0442

inf orms

doi 10.1287/inte.1040.0108 2004 INFORMS

Quadrant Homes Applies Lean Concepts in a

Project EnvironmentKaren A. Brown

University of Washington Bothell, Campus Box 358533, 18115 Campus Way NE, Bothell, Washington 98011-8246,[email protected]

Thomas G. SchmittSchool of Business, University of Washington Seattle, Campus Box 353225, Seattle, Washington 98195,

[email protected]

Richard J. SchonbergerSchonberger & Associates, Inc., 177 107th Avenue NE, #2101, Bellevue, Washington 98004,

[email protected]

Stephen DennisDennis and Associates, 1314 Lake Sammamish Parkway NE, Bellevue, Washington 98008,[email protected]

Quadrant Homes, a subsidiary of Weyerhaeuser Corporation, provides transferable lessons for applyinglean-manufacturing concepts in project environments. The company has obtained impressive market and nan-cial results, using an even-ow, predictable scheduling model in which it starts six houses per day and nisheseach one in exactly 54 days. Quadrant follows recognized lean principles, including (1) designing its valuestream around customer needs, (2) balancing work so all stages ow evenly, (3) operating on the basis of cus-tomer pull, and (4) continuously improving. Quadrant makes the lean principles work in a project environment by (1) knowing what can be standardized and what must be customized, (2) carefully setting and consistentlymanaging customer expectations, (3) aligning goals of all stakeholders, and (4) recognizing that variances willoccur, and designing routines to handle them when they do.

Key words: industries: real estate; production: scheduling, applications. History : This paper was refereed.

Lean enterprise concepts have revolutionized per-formance in scores of organizations. Highly pub-licized success stories from Toyota, Harley Davidson,Hewlett Packard, Dell, Dana, Eaton, and others pro-vide examples in manufacturing contexts. Increas-ingly, these concepts are being applied in serviceshospitals, fast food, insurance-claim processing, engi-neering change orders, and so forth (Ordonez 2000,Swank 2003). Many individuals who have studiedoperations management and management sciencepoint out that lean concepts are not new, in spite of the recent hype. About 100 years ago, Henry Ford borrowed lean process-ow ideas from the meat pack-ing industry and enhanced them with principles fromFrederick Taylor. In the 1950s, Eiji Toyoda gainedinsights from Fords assembly lines, as well as thestock replenishment systems at A&P supermarkets,turning them into the mother of all lean systems atToyota. Along the way, foundational management sci-ence concepts, such as queuing theory, inventory the-ory, system dynamics, theory of constraints, six sigma,

and simulation have helped organizations to ne-tunetheir lean systems.

During the past ve years, we have followed thelean evolution of a project-driven company, QuadrantHomes, a subsidiary of Weyerhaeuser Corporation,a Fortune 500 company. Through multiple site vis-its and interviews, coupled with access to companydata, we compiled a history of the process and itsoutcomes. Quadrant contracts, starts, and closes sixhouses every day, following a 54-day mass customiza-

tion approach. Balanced loads at every stage in thesystem are synchronized at the pace of six per day.Strong performance data testify to the success of themodel.

Lean PrinciplesWomack et al. (1990) coined the term lean in The Machine that Changed the World and embellished itin Lean Thinking (Womack and Jones 2003). Theirmessage codies some of the just in time (JIT)concepts previously described by Shingo (1981),

442

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Brown et al.: Quadrant Homes Applies Lean ConceptsInterfaces 34(6), pp. 442450, 2004 INFORMS 443

Schonberger (1982, 1987), Hall (1983), Monden (1983),and others:

(1) Focus the entire value stream, for each prod-uct or product family, on delivering value from theperspective and priorities of the end customer (that is,the customers value-weightings of time, cost, quality,

performance, service, variety, and other factors).(2) Make value-creating stages ow. Eliminatewaiting, downtime, scrap, rework, and other wastes.

(3) Let the end customer pull the product throughthe value stream. Produce only what the customerwants, when the customer wants it.

(4) Continuously improve the process.Many companies have begun to apply these ideas

but slowly lose discipline, drifting back to their oldways (Schonberger 2002, Hyer and Brown 2003).In contrast, Quadrant has remained focused on theprinciples and adapted them to t the needs of aproject environment.

Lean Principles inProject EnvironmentsPeople typically view projects as unique kinds of operations requiring special planning and schedulingtools. Consequently, they consider them exempt fromprinciples associated with more routine operations.Network scheduling models, stochastic schedule anal-ysis, critical chain, risk modeling, simulation, earnedvalue, and other tools enable managers to plan, struc-ture, and control unique endeavors.

However, projects are not entirely unique; theydisplay several overlaps with day-to-day operations.Adler et al. (1995), Goldratt (1998), Brucker et al.(1999), and Kanet and Sridharan (2000) and haverecognized the parallels between scheduling routinework in job shops and scheduling project portfolioswithin enterprises. Schmitt and Faaland (forthcoming)demonstrated the applicability of assembly-line and job-shop-scheduling concepts to recurrent construc-tion problems for rms producing large, expensiveproducts, such as airplanes, houses, and ships.

Organizations in high-technology industries arerecognizing the value of codifying the routine aspectsof projects while simultaneously allowing for exibility where it will add strategic value. For exam-ple, Austin and Devin (2003) emphasize how theappropriate balance between standardization andinnovation can determine the success of projects inthe software industry. They draw on metaphors fromtheatre productions, highlighting the universality of these concepts.

Although project-driven companies with even-owtask schedules may be rare, increasing numbers of builders are applying a model developed by RaycoHomes in the late 1980s (Lurz 1999, 2003). A related

model is described in Sunshine Builders, Inc.(Dooley and Skinner 1959), a classic Harvard BusinessSchool case, demonstrating that the ideas are not new.

Quadrants JourneyQuadrant began building houses and residential com-

munities in the Seattle area in 1960. In its early years, it built between 150 and 200 houses annually, with rev-enues of $30 to $50 million per year. In 2003, Quadrantsold over 1,000 houses, producing over $250 millionin revenue, turning an industry-leading prot margin,and producing a pretax return on investment (ROI) inthe low 20s. Within its industry, the company is in thetop percentile of net income as a percent of revenue.Based on unit volume, the 170-person company is nowthe number one homebuilder in its geographic market,with twice the sales of its next competitor (Table 1).

Prior to 1996, Quadrant followed a build-to-stockstrategy, constructing an inventory of speculativehouses based on rough demand forecasts. Finishedgoods inventories of completed houses often satunsold for several months. The companys nan-cial returns from residential sales were mediocreand inconsistent from 1980 to 1996. High inventorycosts driven by unsold, completed houses, long leadtimes, and slowly turning building sites contributedto poor scal performance. Quadrant ofcials wereconcerned about Weyerhaeusers continued sponsor-ship and knew they had to change.

In 1996, President Steve Dennis, Executive Vice Pres-ident Peter Orser, and Operations Vice President MarkGray sought a new business model to reinvigoratethe company. Orser began to study the even-owapproach used by a successful Texas homebuilder,Rayco, which is now owned by Kaufman and Broad.Raycos vice president of operations, Jack Robinson,had spent years managing production facilities for

1996 2003

Market share 1% 10%1Customers who say they are willing to

recommend Quadrant to a friend73% 92%2

Customers who actually refer friendsto Quadrant

8% 36%3

Net margin per home 2% 6%4

Table 1: Quadrant Homes performance improved after it adopted leanproject management methods.Notes. Information about data sources is as follows:

1 Market share is based on new house permit data drawn from publicrecords.

2 Data on customers willing to recommend Quadrant are drawn from athird party market research rmQuadrant contracts with this organiza-tion to survey all new house buyers in the region on a monthly basis, andQuadrant is not identied as the survey sponsor.

3 Data on actual referrals are drawn from forms buyers complete at thetime of the rst meeting for selecting options.

4 Net margin data come from internal accounting records.

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Brown et al.: Quadrant Homes Applies Lean Concepts444 Interfaces 34(6), pp. 442450, 2004 INFORMS

Frito-Lay and had transferred ideas from that setting.Quadrants top managers embraced the concepts theylearned from Rayco, but used the model (Lurz 1999,2003) as a stepping-stone to a more systematic and dis-ciplined approach to even-ow home building.

Quadrants Lean SystemIn 1996, Quadrant executives commissioned a compre-hensive study of market preferences. Through surveysof buyers and analysis of real estate sales records, theydiscovered a stable market niche not well served byother builders. Buyers in this category, typically pur-chasing their rst houses, wanted (1) as much spaceas they could get, (2) more choice in features (previ-ously Quadrant made the choices), and (3) good value.These three needs became the dening objectives of Quadrants new strategy. Following the rst lean prin-ciple, Quadrant then began to design its value streamaround the customer needs it had identied.

Quadrant reconceptualized its designs to createhouses with maximum interior space, subordinatingless important features, such as replaces and cathe-dral ceilings. In addition, the company converted its business model from build-to-stock to build-to-order,giving customers choices but controlling their natureand extent to stay within the lean systems capacity todeliver on time. It engaged in a process-focused effortto drive out cost and waste, reduce ow times, andincrease conformance quality.

House DesignQuadrants rst task was to develop designs forhouses that satised needs in the target market seg-ment and were easy to produce from a lean perspec-tive. Quadrant asked subcontractors and suppliers fordesign ideas to improve ease of construction, reducewaste, reduce labor hours, and minimize risk of error(Table 2).

Contrary to what one might expect, Quadrant nowoffers more designs than it did under the old businessmodel. It limits the types of variety that complicateoperations (for example, the number of footprints)and expands variety in areas that do not create inef-ciency or increase work times (for example, types of oor coverings).

At rst, Quadrants architectural team worked atan unsustainable pace to rapidly expand the productline and ll gaps in the market mix. For the entiresystem to follow the even-ow philosophy, design-ers needed to develop a specic number of plans permonth. Quadrant adopted this production-orientedmodel, improving the quality of work life for its archi-tectural staff and eliminating feast-or-famine loads onthe rest of the system. This attention to pacing andsystem balance supports the second lean principle,make value-creating stages ow.

Design element Lean benets

Design footprints are limited innumber

Creates opportunities for stan-dardization, for example,foundations

Simplies operationsDesigns do not include basements Designs are applicable to multiple

building sites and terrainsMultiple designs within each footprint

category and exterior design allowmultiple room arrangements

Can prepour foundations withoutseverely limiting options

Can provide several room arrange-ment choices within a footprinttemplate by rearranging non-load-bearing walls

Part commonality across designs andacross price points (for example,limited window options, roofpitches, and column types)

Suppliers can offer volumediscounts

Standardized, simplied construc-tion methods save time andmoney

Seeks supplier feedback to continu-ously improve designs andconstructability

Reduces ow timeReduces costImproves conformance quality

Table 2: Quadrant uses home design elements to support its lean model.It attains lean objectives while offering a range of design options forcustomers.

Acquisition and Preparation of Building SitesQuadrants consumption of approximately 1,500 lotsper year means that it must replenish its inventorywith a like number at an even pace. Quadrantsland team developed systems to integrate its workwith sales projections, ensuring the availability of land in all 28 submarkets. The key is to obtain theland in high demand areas just in time, avoiding a

buildup of land inventory that would tie up capi-tal unnecessarily and violate the lean model. Insteadof waiting for real estate brokers to push great buysin the next big community, Quadrant buys data onrecent sales from local research rms. Michael Lorenz,who heads this effort, works with his team to ndareas where used-house transactions within Quad-rants price range and square footage parameters haveincreased. Quadrant purchases proximal groups of 90100 lots. It denes each such cluster as a project,which normally sells out in about ve years. Quad-rant is careful not to make block purchases that willcannibalize sales in its existing communities. Thedecision model is data driven and follows simple sta-tistical procedures, supplemented with expert staff judgment.

Setting up Community Sales CentersUnder the old system, Quadrant treated each newcommunity opening as a unique project. The mostrevered community-center managers heroically did battle with local jurisdictions and managed criseseffectively. They followed no standard processes.Now teams follow a 40-item checklist of standard

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On Saturdays or Sundays, 90 people might visit theshowroom.

The showroom, then, was not supporting the even-ow model. Quadrant hired Brent Howard, formerlymanager of a large radiology clinic, to manage theshowroom and revise the scheduling system. First,

he moved all nal appointments with signed cus-tomers to weekdays to separate them from the week-end chaos and to promote attentive service. (In sup-port of this approach, Swank 2003 advocates segre-gating complexity for lean services.) Second, Howardensured that the pace of nal appointments matchedthe pace of the even-ow model. At the current pace of six construction starts per day, the showroom sched-ules seven appointments per day. Scheduling a sev-enth customer may seem to exceed capacity, but a fewcustomers defect or postpone, and Quadrant needsa backlog to support the lean model and continu-ing growth. A third innovation was to add a help

desk at the entrance. The person stafng this deskanswers quick questions and directs walk-in trafc,freeing specialists for their appointments. These andother changes helped the showroom to support thelean model by delivering an even ow of customersinto the construction schedule.

Gaining Approval for Financing andSigning the ContractMortgage nancing, a critical factor in ensuring thatQuadrant could close six houses every day, was ini-tially outside its control. Lenders did not believe builders completion estimates: they knew from expe-rience that builders were always optimistic andtherefore assumed they had plenty of time. To elimi-nate delays in loan processing, the company verticallyintegrated its value chain: it established QuadrantHome Loans (QHL), in partnership with a major bank. Although customers are not required to chooseQHL, over 75 percent do, helping Quadrant to main-tain its even-ow process.

Once customers lock in their selections, the orderenters the system and cannot be changed. At times,this lack of exibility frustrates buyers, but it isessential for ensuring that production, once started,proceeds smoothly. To manage expectations, Quad-rant uses several stages of conrmation leading up tothe lock-in, ensuring that customers know they havea done deal. (The nality of the contract is equiva-lent to the schedule freezing Toyota uses to supportregularity.)

When buyers make design choices and arrangenancing, their houses become part of a small back-log, the size of which Quadrant regulates as a pacingmechanism. Using a modied rst-in rst-out system,it selects six buyers houses a day to become starts,10 days in advance of their scheduled start dates. Via

the Internet, it sends suppliers information on thesestarts, including the design and selected options. Sub-contractors have time to order material, prefabricatecomponents, and schedule crews. Many, in turn, haveestablished even-ow partnerships with their ownsuppliers.

Quadrant employs mixed-model sequencing; in-stead of scheduling batches of similar houses, it seeksa complementary mix based on workload elements.For example, Quadrant pairs large houses with smallhouses or fully loaded houses with those involvingfew extras. (This is similar to Toyotas heijunka prac-tice, alternating different model types on its assemblyline to balance workloads.)

Lean Value ChainManagement ProcessesHaving established lean, customer-focused designs

as the foundation, and customer-friendly orderingprocesses that reinforce its space-for-the-dollar valueproposition, Quadrant established a complementaryscheduling and control process.

Quadrants Stringline ScheduleQuadrants standardized processes have allowed it touse a simple scheduling method, called a stringline(Figure 2), which looks more like an assembly chartthan a network diagram more typically seen in projectsettings. The tasks performed in each of the 54 daysof throughput time are the same for every house.(To achieve an even ow, Quadrant used assembly-line balancing methods to distribute the work acrossthe 54 days.) The rst ve days at the constructionsite proceed as follows:

Day 1: Deliver lumber; install rst-oor joists.Day 2: Conduct under-oor inspection; frame

garage walls.Day 3: Start rst-oor walls.Day 4: Finish rst-oor walls.Day 5: Install second-oor joists.Quadrant posts the stringline chart on the wall at

corporate headquarters. It shows all houses in pro-cess, with standard routings. A string is tacked atthe top on the current date, with a pencil tied tothe bottom to keep it plumb (thus, the name string-line). By looking at the cells under the string, one seeswhat is happening on every house in the system thatday.

Many potential emulators have asked Quadrant forcopies of the stringline schedule, thinking this is allthey need to replicate the even-ow system. Quad-rant is happy to hand over the copies, knowing thatsuccess comes not from the stringline itself, but fromthe underlying value chain and corporate disciplinethat support it.

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Tasks / Date 19-Mar 20-Mar 21-Mar 22-Mar 23-Mar

Deliverlumber,

install first-floor joists

House 1,House 2,House 3,House 4,

House 5,House 6


House 11,House 12


House 17,House 18


House 23,House 24


House 29,House 30

Under-floorinspection,frame garagewalls

House 1,House 2,House 3,House 4,House 5,House 6




Start first-floor walls




Finish first-floor walls

House 1,House 2,House 3,

House 4,House 5,House 6

House 7,House 8,House 9,

House 10,House 11,House 12

Install second-floor joists


Tack String

Figure 2: This gure shows the rst ve days of Quadrants cascading stringline schedule. The current days dateis marked with the string, weighted at the bottom with a pencil. Subcontractors and suppliers move each day toa new set of six houses, moving from left to right on the chart.

Quadrants stringline schedule has deep roots.It resembles Gantt progress charts, line of balance(LOB), and other visual tools that have been in use forseveral decades (Headon 1932). Gantt progress chartsgenerally employ a moving line or similar indica-tor to show the advancing date and to-date progress.However, Gantt charts are used predominantly toschedule and control tasks and resources for a singleentity, such as a subcontractor (Knod and Schonberger2001, pp. 587588). In the 1950s, the defense indus-try developed the LOB technique to track contrac-tors completions of tanks, planes, and so on (Uher

2003). Like the LOB progress chart, Quadrants string-line includes a downward stair-step line to show tasksahead and behind schedule for the houses in produc-tion. Quadrants stringline shows to-date progress formultiple houses (unlike LOBs single-unit limitation)and for multiple contractors and resources, versusGantts single-contractor orientation.

The company implemented the lean system care-fully, initially starting one house per day as it devel-oped the interdependent complement of lean systemelements. Over time, team members have found ways

to control the variances inevitable in a tightly cou-pled system. As of June 2004, Quadrant starts sixhouses on 19 out of the 20 weekdays in each four-week month, allowing one weekday and weekends as buffers to account for bad weather and other delayfactors. (These weekend buffers are similar to the end-of-shift buffers Toyota uses.)

Subcontractor Partnerships in the Value ChainWith only 170 employees, Quadrant relies on outsidesubcontractors for labor and materials. Followinglean and JIT principles, Quadrant has developed

close partnerships with these suppliers, often single-sourcing for plumbing, framing, electrical work, andso forth. Subcontractors become loyal participantsin the process by dening and performing steady,predictable, linear work. With lean-friendly designs,Quadrant and its suppliers can schedule to the hour.Paced assembly line ows occur at the constructionsite for all trades, and beforehand at supplier sites.Tasks for most options and house sizes require thesame time for each skill type and crew, although afew need larger crews to hold their task times.

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Like many manufacturers, Quadrant practices adesign-for-assembly (DFA) approach; its architectsconsider simplicity and task-time requirements whenthey create new designs. Consequently, it seldomis necessary for site superintendents to use emer-gency solutions, such as crashing (adding resources to

shorten task time), which are typical in most projectenvironments.Quadrants collaboration with suppliers is exem-

plary for wood framing components. Under the old business model, Quadrant bought all wood productsfor delivery to a site on the rst day of construc-tion. It then hired a framing crew to build the houseon site. Framers, often standing in the rain, decidedwhich pieces of wood to use where. Quality varied,and wood waste was high.

In the new model, a single supplier, WoodinvilleLumber (WL) supplies both labor and materials forframing. It prefabricates components, such as wall

panels, along in-factory feeder lines within the 10-daywindow of advance notice, then marries them atconstruction sites. WL manufactures these subassem- blies for companion houses and then stacks andloads them on its trucks according to the constructionsequences at the job sites. Quadrant builds houses inpairs (nearby companions with complementary taskrequirements) so suppliers can use their crews ef-ciently. Nine days after a WL crew starts a house,it nishes rough carpentry work and moves to thenext site, making way for subsequent subcontractors.Quadrant engenders its suppliers loyalty by payingthem once a week, unconditionally.

When Quadrant identies a days starts 10 daysin advance, WLs computer system pulls up Quad-rants digitized plan, adds its own design details, andproduces a bill of material and a panel plan for theshop oor. Computer-controlled saws with resourceoptimizing capabilities cut wood, and workers markthe materials for each wall section to guide assemblycrews. WL recycles the little waste remaining. WL isabout to further automate the wall-panel-framing pro-cess along a mechanically paced assembly line.

To reduce ow times, WL continually asks whatit can prefabricate in the controlled environmentof its lumberyard factory rather than construct on

site. In addition to wall panels, trusses, oor panels,and I-joists, WL prefabricates stair systems and frontporch posts and is considering framing roof sectionsat its plant. It seeks improvements at constructionsites as well. For example, it is experimenting withelectric mobile tower cranes so it can join oor panelswith wall panels and then hoist them into position.

Quadrants Stringline ControlSeveral times a day, Quadrant updates progress alongthe stringline on a master chart in computer mem-ory. It tags behind-schedule tasks in red, although few

tasks actually cause schedule delays. The product andprocess designs at Quadrant and its suppliers makecontrol easy and routine. Quadrant builds some slackinto each task and crew-size assignment to ease pres-sure on those doing the early construction tasks andprovide enough oat in downstream tasks to allow

recovery from early delays. For the few tasks requir-ing intervention, perhaps because materials or inspec-tors do not arrive on time, Quadrant and its suppliersfollow these priorities:

(1) First, they consider technological solutions. Forexample, they may apply temporary heat to cure drywall mud quickly.

(2) Second, individual trades will work on week-ends or holidays to get back on schedule.

(3) Third, Quadrant may call for overtime onweekdays.

(4) Fourth, Quadrant or its suppliers will sendmore people to nish a task, drawing them from a

central labor pool or a crew on a companion house.As a last resort, they may send supercrews that spe-cialize (for example, oors, walls, roofs) to get a house back on schedule.

Quadrant does not sacrice quality to meet sched-ules; suppliers must consistently meet Quadrantsquality standards or risk being replaced. Suppliers donot want to jeopardize their steady paychecks, a rar-ity in the construction industry. A 6.8 Richter-scaleearthquake in 2001 tested the quality of Quadrantdesigns and construction: no Quadrant-built houseswere damaged.

The Results of the Lean Value ChainQuadrant has obtained remarkable benets from itsnew business model and even-ow systemmostnotably, greatly increased prots. By transformingits operating processes, Quadrant has leveraged itsgrowth in market share effectively (Table 3).

Quadrant also has reduced its supply chain andproduction costs:

It has improved labor efciency. The house isready when subcontractors arrive, and those fromdifferent trades do not work on top of each other.Repetition has produced learning-curve advantages.

It has improved inventory management. With itsmake-to-order model, Quadrant needs no speculativeinventory. The 54-day schedule reduces work in pro-cess. Suppliers have enough information to anticipateneeds and carry JIT inventory levels. They often shipdirectly to building sites, eliminating warehouse andhandling expenses.

With predictable volume, Quadrant and its sup-pliers can negotiate blanket (open-ended) orders andvolume discounts condently.

It has improved safety. Crews that perform thesame tasks repeatedly establish safe work practices.

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covering the annual estimated requirements of theirlumberyard customers. Many manufacturers, how-ever, have countered arguments about economies of scale by protably extending JIT practices throughouttheir supply chains. This strategy holds potential forQuadrant as well.

ConclusionQuadrant has deployed lean principles in a projectenvironment. We believe that rms in a variety of industries can follow its lead in applying this comple-mentary set. Many project-oriented organizations takepride in providing customized products to unpre-dictable customers, burdening their operations withcomplex processes and high levels of uncertainty.They may be wise to examine Quadrants model andask whether a large pool of customers could be satis-ed with reduced variety in some areas in exchangefor greater value for the money. If they nd waysto offer choices without compromising the operatingsystem, they should be able to apply lean principlesin project environments.

Projects are not necessarily unique: many havecommon features that t well with lean applica-tions. The challenge is to think outside the box andavoid reinventing the wheel for every new project orcustomer.

AcknowledgmentWe extend special thanks to Linda Sprague for her insights

on stringline scheduling and her historical perspective onthe model presented here.

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