Too Many LBM-Owned CMs are Operating at a Mediocre Rate

Issue #12248 - March 2020 | Page #51

By Todd Drummond

An anonymous former lumberyard CEO of 17 lumberyard locations (LBM) explained to me that his two component manufacturing (CM) plants made up only 10% of his sales yet contributed 30% of his net profits. He wished he had given the CM division far more focus and resources.

As a guru for process improvement, it can be very frustrating witnessing many repeated errors by both the large and small companies. Too many (a significant portion) CMs are operating at a mediocre rate. Too often, I hear (potential) clients say that they’re “doing okay” and business is “good enough.” But, why wouldn’t you want to do better? Why wouldn’t you want to see what else is possible? The number one problem I perceive is that the leadership in these companies simply do not know any better.

Here are some clear indicators that your company has room for improvement:

For the CM division, during these strong building markets, your net profits, or EBITA if you have high debt loads, should be in the high teens to the mid-twenties. One client of mine is operating in the low 30’s for net profits for 2019. (No B.S.)
Relations and communications between the CM and LBM locations can be problematic. There are often complaints of the components being priced too high, and the margins for the CM group are often sacrificed to garner more sales for the LBM division (see also: Truss & Wall Panel Manufacturing a Cash Cow Division).
Skilled labor (employees) seems to be always in short supply, and various groups are always needing more new hires. Manufacturing, design, and other areas are all experiencing shortages, so there never seems to be enough skilled personnel to fill all of the vacancies. Therefore, your company can never reach its full sales and net profit potential.
Why does the sales team have segregated project information between the CM and all other areas, such as doors and windows? Many executives are told repeatedly that their expensive POS system is supposed to be handling all of the critical need-it-right-now information, yet the promise of it working someday remains vague. If you stop and think about it, you’ll probably realize how many productivity interruptions by salespeople are happening at your company.

“Modern cognitive theory states that people tend to perceive reality in light of pre-existing expectations and will ignore large amounts of contrary data before finally changing their minds.” Psychology Studies, Author & Source Unknown

Once people start recognizing that there might be room for improvement, too many have a never-ending excuse of “there’s not enough time, so it always will be sometime in future,” but that pending date of change always seems to find a reason to slide further into the future.

“Are you too busy for improvement? Frequently, I am rebuffed by people who say they are too busy and have no time for such activities. I make it a point to respond by telling people, look, you'll stop being busy either when you die or when the company goes bankrupt." Shigeo Shingo, Japanese industrial engineer considered the world's leading expert and originator of the lean manufacturing practices at Toyota

Real, positive changes come from the top down in all organizations. Anyone trying to make changes in an organization, if he or she does not have the authority, will be undermined by those who do have the authority. Too often people try to make changes, but they are undermined by those above them with the real authority in their given areas because of two major roadblocks:

Bureaucratic inflexibility – Too often, people are well aware of possible methods for improvement, but the company’s policies and procedures do not allow any flexibility or empowerment to take the initiative to make the improvement in their given area of responsibility.

Pride (ego) – Too often, leadership is blinded by their egos, believing that somehow their many years of experience and professional knowledge mean they have all of the answers even as markets and situations evolve and change. We often cannot see that change is needed, or, if we do indeed recognize that are changes needed, our pride prevents us from admitting it. It is as if, by accepting, we are admitting, “We were wrong, and they were right.” Pride is the number one obstacle that prevents us from listening to others. This belief is an absurd way of viewing life in general. What worked in the past was a good thing, but we need to evolve to meet the challenges of today. As Peter Drucker once stated, “The greatest danger in times of turbulence is to act with yesterday’s logic.”

Instead, here are only two of the many TDC suggestions of productivity gains for the admin, sales, and design groups:

Try reducing the workload on the sales and design teams by providing them an easy to use and extremely quick method to produce wood truss quotes compared to truss design software, Sum+It.
Try automating your communication and project process to make it very easy to use, with all project information grouped, automated, and made mistake proof with AppWright (see also: Small Investments Can Garner Huge Gains for Productivity for Your Sales Team).

Are you ready to move from mediocre to highly profitable?

TDC has proven, real-world, 30+ years of expertise that goes far beyond what many expect and has provided consulting services for well over one 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. Providing full-time consulting services for more than 15 years, TDC uses proven and practical lean manufacturing best practices combined with industrial engineering principles that include refined time standard man-minutes for truss manufacturing. 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/.