Since the home building crash of ‘08, there has been a huge spike in mergers and acquisitions of wood truss and wall panel component manufacturers. With all the big players in the market, independents naturally have concerns about staying competitive. Believe it or not, independents still have more than a few advantages that the big guys have yet to figure out how to resolve.
I have performed multiple consultations with large multi-location companies, and it is still surprising to me how they all share so many behaviors. The larger your group, the harder it is to keep it nimble and focused on doing what is right for net profits instead of trying work within the corporate bureaucracy or please the next person in charge. Let’s list some problems that are so common among the big guys that independents will beat them every time.
Focusing too much on red herring numbers, such as board footage, instead of gross margin dollars. Oh my goodness, this is a big one. Everyone I speak to about board footage knows how inaccurate it is in gauging daily or job-by-job efficiencies for wood truss manufacturing, but they do it anyway. For example, at a multi-location company, one GM would always make sure their floor truss manufacturing was at maximum production no matter the current scheduled demand. They would have a yard filled with floor truss orders that were not due to be shipped for months. Why did this happen? Well, his corporate boss was always asking him about their monthly board foot productivity. Needless to say, there was a lot of money tied up in unnecessary work-in-progress that could and should have been focused elsewhere. Most independents always have their eye on gross margin per time period as the priority, and large companies can be too focused on other fictitious units, thinking they always translate into better profits. For wood trusses, proper time units derived from motion and time studies are the most effective means to gauge production efficiencies, create schedules, and develop better pricing models—not board footage. Focus your attention on gross margin dollars per time period and the effort it took to achieve them, not fictitious units that have very few benefits.
You would think the big corporations would be better at investment for capital expansions, such as equipment, but I find just the opposite is true for most of them. Yes, most corporations may have easier access to borrowed money for investments, but it still baffles me how poorly they make decisions regarding which location or what equipment for investment. Most start with a budget number, and then it comes down to the most influential of any particular GM at any of the locations instead of basing it on an honest assessment of what would be the wisest investment overall. Oh, you think I am kidding or maybe exaggerating about this point, but I am not. For example, one location of a big multi-location company that is using some saws that are so worn out that 20% of the cuts had to be recut once they reached the tables (their numbers, not mine). The total sales were such that if they invested in new saws at the beginning of 2018, they would have been paid off in full within six months just with the additional production and sales they lost because of the lack of production capacity. When performing consultations and making expensive equipment recommendations, it’s very common that the entire cost of the new equipment will be paid off within one year by just the additional sales they’re able to produce. (no B.S.)
Too often, people are vendor-loyal to the extent of purchasing the wrong equipment, so that even when they’re using brand new equipment, they would be better off melting it down for scrap metal than using it in production. There is one particular linear saw still being sold that is so inaccurate that it slows build tables to a crawl because of all the re-cutting; there’s no doubt in my mind that you are better off using centerline swing saws with an auto stop fence than this automated linear saw still being sold. Another example is that too many are making an expensive commitment in wall panel equipment that is marginally better than wood tables when instead you could have double the output with a slightly larger investment. Why on earth are so many so blind to vendor equipment service reputations, equipment performance, and reliability? It just goes to show you how influential a vendor salesperson can be in the buying decision. Large or small, this negative vendor influence affects independent and large companies equally. The difference between the large and small companies is that small companies will not tolerate poor performance as much as big corporations. Large companies lose far more in productivity and sales over a longer period, while the small companies will take a hit trading in the slightly used equipment for something that works much better.
Too many large companies are too focused on some particular analytical tool, such as six-sigma or someone’s particular background from other industries and list of degrees. It doesn’t matter if someone has a third-degree black belt in six-sigma or some other modern methodology process if it does not translate into practical, real-world best practices throughout the company promptly. An example would be a six-month study using GPS tracking on forklifts, or pedometers on people, to improve truck loading or workstation throughput. The majority of improvements can easily be analyzed in days, not months, when you have deep exposure to hundreds of different practices, industrial engineering training based on lean practices, and years of experience within the industry. The years of hands-on industry experience and exposure to hundreds of different companies without bias toward any vendor or practices are key. Too many large companies are getting lost in the forest by looking too closely at the trees when they need to apply common sense experience along with lean principles. All the lean manufacturing principles, including six-sigma, certainly do work, but most companies fail to understand which tool to use in the lean toolbox and how to implement it effectively at the macro and micro levels. Small independent companies have a much better common-sense approach about making decisions for process improvements because of their unwillingness to wait. Therefore, a small company will not waste its time on a proposed six-month study that could and should be done in days because they are not fixated on a specific analytical tool, but on improving results in a timely manner.
For 2018, for wood component manufacturers this year’s net profit are frequently in the range of at least 18% to 25% of total sales after taxes. If your company’s net profit is not, there should be no excuses. For any of you who are struggling with mediocre net profits for the year 2018, you should realize that what and how you are doing what you are doing is not good enough. Tougher times are returning, and your company needs to be ready. Whether you are a new or a longtime operation, save your company a great deal of time and money by getting professional help and training for effective implementation of lean manufacturing and time standards from Todd Drummond Consulting (TDC). TDC is the number-one expert on reducing costs and improving productivity in all departments of the wood truss and wall panel manufacturing industry, using proven and practical lean manufacturing practices combined with industrial engineering principles. Before you buy equipment, get TDC advice! TDC does not receive referral fees from any equipment or plate vendors, so you can trust TDC for unbiased vendor and equipment recommendations, which are shaped by the vendors’ customer experiences. Don’t take my word about TDC’s services—read the public testimonials that so many current and past clients have been willing to give: https://todd-drummond.com/testimonials/
Todd Drummond Consulting LLC.
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