Gearing Up as a Cabinet Parts Manufacturer

      Thoughts on starting up in business to supply cabinet parts on a large scale. August 7, 2008

Question
I need some advice on coming up with a rough feasibility study for an endeavor I am contemplating. I was one of the co-founders of a company but resigned in 2001. I was COO for the company and have a background in design and custom cabinetmaking. The company sells mostly modular type frameless cabinetry for residential and commercial applications including healthcare. A large percentage of their cabinets are manufactured as RTA but come into their warehouse set up already. They have 2-3 vendors that they buy their cabinets from, but I think a large percentage of their sales are through one main supplier out of the Midwest. This product line is a frameless carcass with low pressure laminate (melamine) over HD particleboard and has high pressure laminate doors and drawer fronts with solid 3mm PVC edges. The company is in the NE so goods get shipped from the Midwest to them. I know that they continually have shipment problems with their vendors, causing damage to customer relations, and also do not have adequate access to new product development, an area where I feel the company lacks and one I believe has contributed to their trouble with growing sales since I left.

I may approach the company to see if they would be interested in establishing a new manufacturing company that would provide manufacturing and product development services. There is also a chain of similar retailers across the country that could be a distribution channel for new and existing (replace their current vendors) products. So there is potential for an immediate volume of production; the level depends on varying factors.

I need to determine if my concept offers compelling value over their existing vendor manufacturing format. Can it be competitive with their existing vendor(s) for those types of sales that have margin constraints? When introducing new higher end products with higher sales prices then manufacturing profitability would be planned for and competition would be less of an issue.

So my pitch on the advantages of this manufacturing company would be tighter control over quality, additional profit center, ability to provide greater customization and reach new markets, new products and services, better lead times, brand enhancement. Have not decided whether units will be manufactured RTA (cam and dowel) or something like blind dado that would work well on a CNC router. Maybe it will be a combination of the two. Donít anticipate doing much face frame construction.

I want to estimate startup costs for a manufacturing facility that could produce $1M in gross sales of mainly frameless cabinetry, based on some assumptions such as CNC router and software (I know eCabinet Systems), Lean engineered to order/low inventory methods, outsourcing possible on wood finishing, wood doors/drawer fronts, drawer boxes.

1. Overall plan, good or bad?
2. How large (square feet) plant size required, and minimum ceiling heights? $1M/5M gross sales.
3. How many employees, production? $1M/5M gross sales.
4. Typical gross margins, material, labor, plant overhead, G&A expense?
5. Machinery and equipment required to accomplish $1M/5M gross sales?
6. Market timing, recessionary times ahead?

Forum Responses
(Business and Management Forum)
From contributor J:
I think your biggest obstacle to success will be #3, employees. I only say this because experienced, knowledgeable, dependable employees are far and few between. I know this is a little off track, but I mention it because this one area will be a source of considerable pain for your operation and is most likely what ails your competitors. Most companies who are experiencing quality control issues can trace that problem to a manpower issue.

It doesn't take a lot of space or fancy equipment to generate $1 mil in sales. It does, however, take industry-specific experience and a clear vision.



From the original questioner:
Thanks for your response. Your point is well taken. If we are going into a recession (some think we already are), perhaps a qualified labor pool will become more available if layoffs from other companies start occurring. Either way, I hear what you say.


From contributor J:
With the amount of shops going under, you can use the soft market to your advantage. I would spend some time looking into turnkey business auctions to get a feel for costs. I agree about the 1 mil mark not requiring too much equipment. I would look closely at future growth, though - don't get cornered with a CNC-only system. CNC machines are great, but for casework applications, nested base routing is slow at best... at least until they figure out how to run a 5 sheet book on a vacuum table.


From the original questioner:
Thanks. How much space do you think is required to produce $1M product at wholesale? Also, you mention nested base routing is slow. Can you elaborate on that a bit and would this be true if one was not producing many of the same size cabinets that perhaps would be best suited to stacking on a beam saw? I really don't know much about the beam saw except what it is. When you mention "turnkey business auctions," are you referring to an auction that sells machinery and equipment, or is there such a thing to sell the business itself?


From contributor J:
There are several places to look for turnkey businesses. You can find them here on WOODWEB or at Ex-factory under Plants/Businesses for sale as well as many others. As far as shop size is concerned, that will depend on the equipment you purchase. A glue line with a press will require much more room than a contact booth with a pinch roller, etc. I read in your original post that you were supplying the health care field, so I assumed you were producing large runs using standardized cabinet sizes, which prompted my remark about nested base routing being slow. If you are custom sizing everything, the panel saw would be limited to the same single sheet optimization as the CNC, and the speed difference would be negligible.


From contributor L:
1. Overall plan, good or bad? Risky with only one major customer!

2. How large (square feet) plant size required, and minimum ceiling heights? Greatly depends on equipment and sales; plan for expansion. We have 18' sidewalls and I've often wished for another 2 to 4'. Ground level doors 2' wider than your longest material and on both sides of the building for good airflow in the summer, two loading docks. Probably a minimum of 10,000' to start; plan for additional (not in a separate building). Moving is expensive!

$1M/5M gross sales? 5 times makes a considerable difference!

3. How many employees, production? 7 @ $1M, 28 @ $5M. Varies greatly depending on your level of standardization, material handling, automation, etc.

4. Typical gross margins, material, labor, plant overhead, G&A expense? Wouldn't even hazard a guess, too many variables.

5. Machinery and equipment required to accomplish $1M/5M gross sales? Again, big variation. At $1M I'd run nested, blind dado, screws and glue. Router 80 to 150K. I'm assuming here that finished ends are all laminated after assembly. If shipping KD, it will take more equipment. Bander with 2 motor contour end trims $80K+, forklift used $13K, dust collector $8K, small tools $10K, compressor, drier, piping $6K, electrical work $5 to 20K, software, computers, training, office equipment could vary greatly (you could operate on freeware or $40K+ of software).

6. Market timing, recessionary times ahead? There have been many ups and downs since I've been in this business. Keep a reserve fund available; don't have all your sales in very few clients. Make only what the client is willing to pay for, never buy business. Run it lean. If it doesn't add value - don't. It took me a long time to get a really good crew; I've found I can't judge an employee by an interview.



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