Today my little first grader worked on different word families during phonics time. We used Starfall last year for Kindergarten and I was very pleased with how he progressed, using that program.
This year, we are using a combination of different materials for reading/phonics, including Plaid Phonics, Starfall books, Scholastic readers, and lots of hands-on activities.
A local school supply store went out of business last year, and I was able to gather a TON of different manipulatives and bulletin board sets for dirt cheap! The one pictured above has lots of little pictures and several different word family cards.
We also do the above pictured activity several times a week and it really reinforces the different sounds within a word.