Why It’s Time to Add Component Manufacturing to Your Lumber Business

Issue #10225 - April 2018 | Page #18

By Todd Drummond

We’ve all seen the predictions: Component manufacturing is going to grow ever bigger as labor remains tight and big builders get more efficient. And with component manufacturing gross margins being higher than what you get for selling commodities, it’s a good time to ask: Shouldn’t you stop buying trusses, panels, and pre-hung doors from an outside vendor and start making them yourself?

I think so—as long as you accept the challenges you’ll face as you seek to reap the benefits.

Changes in the competitive landscape demand that you start contemplating this. The biggest multi-location lumberyards already have their own component manufacturing facilities and are building more. As they do, independent CMs will have to start selling directly to builders if they want to keep up their volumes. Increasingly, you will lose this part of the sale and, therefore, the added margin dollars such deals provide.

These trends also will leave you as less than a full-service provider. Why buy bits from you when they can get a bunch from another place? You end up the loser.

I have had interesting conversations lately with several clients who are thinking of starting component manufacturing facilities but weren’t sure they should. To them—and to you—I would ask these three questions:

Does your company have enough sales to support the cost to make component manufacturing profitable? (Most clients reply with an unqualified yes.)
Are there enough independent CMs in the area for you to continue purchasing truss and wall panels from them and remain competitive in the market? (The number is diminishing, I typically hear.)
Is your company financially capable of the startup cost and other financial obligations that will be necessary? (Given that times are good for most dealers, the answer for now is yes. So, if not now, when?)

Every new endeavor has a startup cost beyond the normal acquiring of assets. There is the dreaded hiring of new personnel, learning new processes, and all the other time-consuming technical skills needed. Those challenges typically have been enough for many companies to opt for acquiring an existing CM. However, you might instead have to start from zero. If that’s the case, here are two common issues you must overcome.

Acquiring assets such as land, buildings, and equipment are the most obvious consideration and yet the most mishandled one for long-term growth and optimal performance. The leading cause of this is too much reliance on truss plate and equipment vendors’ “free” advice. The advice given by the vendors is not free and is tailored to match your expectations to garner the sale. This mistaken trust in free advice is especially true if you opt for a one-solution vendor that will provide all your equipment and software needs. Trust me, none of the vendors are the best at everything, and it is always best to diversify your reliance on business partners (vendors).
The labor shortage is as much a problem in the component manufacturing industry as it is for the rest of the building industry. For manufacturing, if you think automation will solve all your labor and efficiency needs, you will be unpleasantly surprised as expectations fall short. For all the other aspects of labor, finding talented individuals with the experience needed is not going to be easy or cheap. But like every other obstacle, there are ways to mitigate this issue. When talent is not available, the obvious solution is to find the right people and teach them the skills they need. I have explained to many clients that, if you give me a great manager, I can teach him/her the skills of running a component manufacturing operation. The technical issues, which are immense, can be taught. Much more difficult are all the other non-CM skills such as communication and people skills.

Your existing company did not develop overnight, and the same is true for a new component manufacturing operation. No matter the preparations and investments you make in this new endeavor, you will encounter obstacles and ongoing areas of concerns. Mistakes will be made, and some will be costly.

Many mistakes are made because of egos that blind people to the things they think they know as being correct but are false, especially to those who are trying to do this via trial and error. A good example of false thinking is using board footage as units of manufacturing productivity or, even worse, for pricing.

Planning and then operating a profitable component manufacturing operation is an all-or-nothing endeavor. Half or timid measures will only lengthen the amount of time it takes to decide when or if it is all worthwhile. Like most endeavors, planning and getting expert advice from trained professionals will help mitigate the risk.

For the vast majority of lumberyards, I believe it is not a matter of if you are going to operate your own component manufacturing operation but when. Every day that slips by is only weakening your market position and strengthening your competitors as they refine and work through the problems of their new CM division.

Now ask yourself one simple question: Why should I wait one more day and not start immediately?

If you are thinking of starting a new component manufacturing operation, give TDC a call and save your company tens of thousands of dollars with a CM prospectus. Whether you are new or a long time existing operation, I cannot state this enough: save your company a great deal of time and money by getting professional help with the training and effective implementation of lean manufacturing and time standards from Todd Drummond Consulting. TDC is the number one expert in 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.