Even though the new build season of 2020 is expected to be a good one for most, it likely will be more challenging to retain net profits than many anticipate. Most component manufacturers (CM) have been buying equipment and expanding their operations like crazy. Also, new money has flooded into the industry and has contributed to added competition. All of this will put pressure on driving down margins and lead times, even if the new build starts remain the same as the previous year. If you want to stay competitive and grow your profits, buying equipment is not going to be good enough for most of you. You need to have all of your processes and mythologies evolve to a higher level of performance, which means what worked in the past may be no longer good enough. This includes areas beyond the manufacturing which most have not given much thought about for many years.
Do you find sometimes, when you are offering a different perspective to someone, like an employee, that they take it as a personal afront and they will argue their point while doing their best to ignore what you are trying to explain to them? From their point of view, this challenge of their perspective is pointing out how wrong they are versus how right you, rather than simply approaching the situation with a different perspective. As someone whose business for 15+ years has been offering suggestions to help people improve their operations, I can certainly attest to the frustration that arises when the other person is looking at everything as right versus wrong, rather than a open discussion of new ideas. What worked in the past is a good thing, but one should view everything through the lens of continuous improvement philosophy (lean term – Kaizen). This means new concepts need to be seriously evaluated, tested, and implemented regardless of current or past conditions.
So many CMs sell their manufactured components, wall panels and trusses, like they are a retail lumberyard selling a can of paint. When you are processing a work order in manufacturing, the margin calculations should be based on the time the work order is being processed, not the cost value of the order. However, too few can get past the concept of comparing pricing based on a margin based on time versus the cost markup method, because the industry is dominated by the cost markup method. When you truly understand and implement margin per time concept pricing instead of market cost markup methods, your company will make more net profits. Better net profits happen to every single company which implements this simple margin per time concept. However, most are unwilling to test this proven method in a spreadsheet, let alone in their company’s pricing practices.
The number of companies which operate blindly not knowing their actual net profits on a weekly or even monthly basis is truly staggering. These companies are typically using some type of cost averaging and cost estimations from their design programs to guess their monthly results. It boggles my mind when I discuss ideas with potential new clients about their current practices and they cannot give me solid numbers about their current profitability. Every CM should know their real, not guesstimated, profitability for every order that is processed, and therefore the actual profit/loss for any current time period. It is a bad practice to operate a company that does not understand the profit/loss until a given quarter, or fiscal year, is completed. Fixing this blind spot is not difficult and it improves a company’s net profits by validating current and improved methods throughout the company.
I’ve said it many times before, and I will say once more: using BF to schedule, measure productivity, or pricing for roof truss manufacturing is such a decades old poor practice that I cannot emphasize enough. Everyone knows that using labor BF estimations for an AG order versus a complex 1-1-1 run hip roof system is like comparing apples to lead balloons. Boad footage has no linkage to the processing time of roof truss orders, and yet so many are convinced that it is best or at least better than nothing and, since it worked in the past, they will continue to do so in the future. Any CM who is still using BF for their roof truss pricing is literally losing 100’s of thousands of dollars of potential net profits to the competition and yet so many think they are doing great. Every client that has used my time standards (man-minutes) and compared them to BF has seen scheduling, productivity measurement, and profits improve. It is not difficult to compare accurately derived man-minutes to BF over a given time period to prove this simple yet very vital concept.
Even when you want to make the needed changes outlined in this article, most of you will be unable to do so because of company culture and bureaucracy. By far, the worst companies for poor business practices are the large multi-location companies which are hamstrung by internal bureaucracy and a culture that will not allow newer better practices to propagate throughout the business. Independent operations consistently are the most efficient and profitable when compared to all the large multi-location CMs, but very few independent CMs have all of their processes and equipment aligned in the best way to meet their changing business environment. Of course, my paying clients are taught best-in-class practice and also are guided to better equipment choices without worry about bias toward any particular vendors. As an operations guru, even yours truly tries to learn something from every new client to improve my services, so maybe your company can learn something new too.
When you want more than hype, TDC is your best source for learning about the very best and latest practices to keep your company competitive. TDC has proven real-world 30+ years expertise that goes far beyond what many expect and has provided consulting services for well over a hundred clients. Whether you are a new or longtime operation, save your company a great deal of time and money by getting professional lean manufacturing help and training to improve all of your processes, not just in the manufacturing areas. For more than 15 years of full time consulting services, TDC uses proven and practical lean manufacturing best practices combined with industrial engineering principles that include refined time standard man-minutes for truss manufacturing. So, before you buy equipment, get TDC’s advice! TDC does not receive referral fees from any equipment or plate vendors, so you can trust TDC for unbiased vendor and equipment recommendations shaped only by customer experiences. Please don’t take my word about TDC’s services though. Read the public testimonials many current and past clients with decades of expertise and experience have been willing to give: https://todd-drummond.com/testimonials/.
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