New building sales across the US are way up, which shows in the long lead times of the wood truss and wall panel manufacturing companies for new orders. However, too many of these manufacturers are not showing healthy profits despite the long lead times. Lead times greater than four weeks are a significant indicator that your company should be garnering strong net profits. If, on the other hand, your company is still in the single-digit net profits with these long lead times, you need to ask yourself: when do you expect to make stronger net profits? At what point do you tell yourself that you need to make some changes and do better?
What I found striking is that the lumberyard-owned component manufacturers (CMs) consistently make far less money than the independently owned and operated CMs. Far too many lumberyards own unsuccessful CMs. These operations usually have a single-digit net profit and are often considered a problem area for their companies. However, the CM division should be a huge cash cow. When it comes to CM net profit averages, it is common to make 15%+ EBITDA in normal markets in which sales exceed a two-week lead time. Many independents garner 20+ EBITDA in the good years, which should be now!
The first question you should ask yourself is: if you keep following the same practices and expecting different results, why the hell are you fooling yourself? At what point do you realize that the very practices you have implemented, intentionally or not, are giving you the very results you are getting? As Edward Deming once said, “Every system is perfectly designed to get the results it gets.” Therefore, you should admit that what you are doing and how you are doing it is not enough, so these practices have to change.
When leaders finally conclude they are ready to make changes, the first mistake most make is focusing all their attention on manufacturing. Yes, manufacturing in your operation always needs improvement, but what about every other area in your company? It is too easy to call your existing vendor(s) and ask for “free advice” to have them point out some obvious areas for possibly beneficial change. But in most cases, the advice given includes expensive equipment upgrades and minor tweaks to the manufacturing processes, which are not enough to turn things around. To compound the “free advice,” they too often advise a one-size-fits-all solution. An example in truss manufacturing is linking an automated linear saw with each build station on the roof truss gantry tables. Yes, this setup is the best solution for some truss types and runs, but it’s certainly not the best for every condition. As I stated in my November 2017 article, “Is a Linear Saw Paired with Each Roof Truss Assembly Table a Magic Cure for the Best Lean System?”, this solution does not fit in all conditions for very good reasons. In most cases, a blend of multiple configurations of equipment and practices is normally the best solution for overall improvement. Manufacturing is only one side of a two-sided coin.
Effectively, too many employees are using their existing vendor to protect their job and status within the company. Sometimes trusting your existing vendor is like trusting IBM’s stock value in the ‘80s. No one ever got fired for buying IBM stock, because it was reliable and safe but not necessarily the best or only option. Just like in your company, if an employee tells you that your existing vendor provided the software, equipment, or idea, they are somewhat protected from the “radical” change. The vendor is too often perceived as a safe and reliable resource, which then enables employees to use the vendor as protection from making hard decisions and implementing changes. But if you truly want to make positive changes, do not accept excuses from your vendor or your employees. Give them the support and training to make the requested changes and do not accept excuses.
The other areas you should be changing, or evolving, are all the other aspects of your process. An example of this is to change your pricing priorities to weed out the poor accounts and garner better-paying orders based on schedule priorities. There is a myth for “long term” customers who state they are loyal to your company for the long term so that your company prioritizes their orders with better service, such as shorter time schedules and lower prices. That is a formula for disaster. Any orders that are moving ahead of other orders should be the highest paid (highest margin@/man-minute) orders. If they are not, why not? You are actually paying the customer to be your customer, because they could not find a lower price and quicker service from the competition. If they will leave you for lower price, how are they loyal? If all the competition’s schedules are the same or greater than your lead time, raise your price for any shorter lead times! An example is 4 weeks or more. The time to make huge profits is during long lead times. Any orders with very high margin$/man-minute get a higher priority than low margin$/man-minute. Ask yourself these three questions:
- If the company is prioritizing losing opportunity margin dollars for low margin orders instead of higher margin orders in the component operations, are the supposed gains at the lumberyard actually worth the loss? Are you guessing, or do you actually know?
- Are you penalizing the component plant’s management for lower than expected numbers while forcing them to process low margin orders?
- What is the greater priority, a salesperson’s commission or company profits?
I will be frank and tell you now that my articles do not give away all the valuable suggestions that I provide to my clients to improve all areas of their company. But I will tell you that many successful companies have implemented a blended system, and, without a doubt, it is best to have a combination of vendors for equipment and software solutions and industry-leading best practices. What’s required to do this is to break out of group thinking and be willing to take a chance.
Implementing change is difficult because it is time-consuming, and we can make mistakes. Failure is something we all do our best to avoid. Using old tried and true methods may appear safer and create far less resistance from certain groups. But implementing change can and does provide results far greater than many of us would initially believe. Find someone you can trust who can show you those changes and how they’ll affect your business. And at the same time, tell yourself, no more excuses; the time to start is now.
TDC does not receive any equipment or plate vendor royalties. If your company is planning on any equipment investment, let TDC recommend the best and unbiased solution for your company that has saved previous clients tens of thousands of dollars while providing the gains they were seeking. Nearly one third of the actual 100+ clients have given a written public testimonial.