Question
I would like to share an email I received yesterday from another fellow on this forum. He wrote:
"...I've finally done it. We reduced our WIP (work in progress)! Man, what a difference! We are getting better organized and clutter is flying out the door! Jobs are slamming together at a rate that is shocking! Money is moving much, much better..."
You notice there was no mention of databases, nested base manufacturing or software. The guy didn't have to buy anything at all. The only thing they had to do was decrease the amount of things they were doing at any given time.
Forum Responses
(Business and Management Forum)
From contributor D:
In some ways, the change is as simple as resolving to change the way the shop works. A recent thread about running large, multifaceted jobs through a shop showed very well the biggest problem is that resolution to change. The poster mentioned that though the job has many phases and parts, they let those things accumulate as partially complete, all the while adding more on top. They also resisted trying to hold the customer to the task by claiming to be artists, implying that some sort of disorganization was inherent in any artistic endeavor.
This was one of those "Ah ha!" moments, when the picture coalesces and it becomes clear that the solution is at hand, but the poster refused to recognize it, while most observers could easily see the solution. Artistry had nothing to do with it, but was offered as a defense. Who said, "We have met the enemy and he is us!"?
"We have met the enemy, and he is us" is from the sorely missed Pogo cartoon strip by Walt Kelly.
10 cabs x $1,500 = $15,000 per day x 5 = $75,000 per week x 4 = $300,000 per month x 12 = $3,600,000 per year @ 25% net profit = $900,000 on top of a $120,000 salary.
Do you dispute my numbers? Which ones specifically? 0 cabinets per day is a round number, nothing more. If you produce less, you make less; produce more and you might make more.
$1,500 is simply a realistic number that you'll find dozens of shops in my area producing. 25% profit margins is another realistic number. In fact, you'll find many forum contributors with these margins. From there, all you have to do is add.
Contributor A, you are right. You said: "Too much focus is placed on tools and production methods." The only things customers give us money for are the things they care about. They could care less whether we wear leather aprons and use wooden mallets or do this with CNC. To quote Jon Giordano, they could care less if we sprinkle pixie dust on the wood. Pogo is right too.
The contractor wants us to install from the chair rail up, stop, and let the other subs, specifically the hardwood floor people, get in the room and do their work, then come back in and finish. It is a reasonable plan for a number of reasons.
So we did just that - built parts from the chair rail up, delivered those parts to the painter/finisher. While the finisher was doing his magic, we began working on desk parts. Before we were able to completely fabricate the desk, the first run of parts was ready to install. By installing those first parts, we open the job site for the floor people to work.
So do you install from the chair rail up or tell the contractor to wait? By waiting to install the first run, are you increasing or decreasing your WIP? We chose to install as requested by our client. By the way, we are going to get a monthly draw regardless.
Two people installing seemed to be the correct team make up. The office was not big enough for four of us to all be on site, so we had a crew on site and in the shop. Shop crew is working on desk parts. Increasing our WIP.
Now when the on-site crew gets finished, they need things to work on. So I am drawing, getting a list of needed material and hardware, etc. So with one little job, all of sudden I have a number of projects in play. As we get close to the end of the office project, I better have another one queued up. If I wait because I want to reduce my WIP, I risk not having work for people when they are ready. "Just in time" works great as long as it is not "just a little late." By having all of the supporting tasks completed for the next project, am I increasing or decreasing WIP?
What I hear from this forum is that you all do not have good systems in place to handle multiple projects at one time. If you have a big crew, then you build standard items. You have a line of products. Having a killer information handling system is clearly a competitive advantage. Reducing your WIP to one project start to finish may be much easier, and that business model may manage you right out of business.
How about having great systems in place and in depth that allow you to have a large crew working on multiple projects regardless of the complexity and raking in the money? How many shops do you know that have tried to grow and have either been forced out of business or quit because of burn out? My goal is to build a juggernaut of a custom woodworking business. Having superior systems is mission critical.
I chose the 1 million in personal income because it's a nice, impressive, round number. I wanted to associate an absurd (to most cabinetmakers) income with a rather modest goal of making 10 cabinets per day.
Why would you focus on buying a $100,000 router, when you can build 10 cabinets with a slider? Why would you focus on building complex information systems when you only have to manage production of 10 cabinets per day? There's nothing wrong with having a router, and there's probably nothing wrong with ERP or MRP systems or whatever they're called. But they are not the means to an end. I have neither, and don't feel I need either. When I myself achieve 3 million in sales in the not too distant future, it will have had nothing to do with a CNC router, or complex software, or kaizen events.
That is why I'm constantly dumbfounded by the tone of conversations here. Never a word about sales, or engineering, or project management; the very cornerstone of what makes for a successful company and a successful project.
Without some formality in the management of these details, you only have informality, which leads to randomness. When a contractor calls to say they dropped or lost or did not receive a shelf and you agree to take care of the problem, what do you do, pin a note on the refrigerator door? How do you pass out such a task and how do you monitor the status of this task? Try asking somebody in your shop if they completed a specific item, and they can't remember what they had for lunch. How do you expect them to remember to do something they haven't even done yet when they can't remember what they have done?
There's nothing wrong with systems for managing information, whether you do one or ten cabinets each day. If your system is to remember to ask the guy before he leaves, then you probably spend more time in mop up than you might otherwise have to. It doesn't really matter where the time gets lost, it's still lost. Codifying this is just a different (formal) way of doing something that you are already doing anyway. It's just a different way than relying on brute memory.
Contributor Z, you may want to look at redefining your process to reduce WIP. Restructure your invoicing so you bill when a product is assembled, then when it is finished, then when it is installed. This way your WIP is eliminated after each step.
Contributor A, the reason why someone would invest in a router and information systems is to satisfy a business model. Just because your model is successful doesn't mean there aren't other successful models. Those tools definitely can be a means to an end. Sadly they are often not used that way.
While the project is being installed, you have begun fabrication of the next series of items, which include:
- the MDF ship lap paneling
- teak coach house rail mahogany raised panel wainscot
- mahogany chair rail
- mahogany base
- a 20' mahogany desk with bookcases
- a built in bed with bookcase, etc.
It sounds like you have a crew of four. It also sounds like you'll only have two people working in the shop, as the other two are installing. From the list above, and with only two people, I can't see why you wouldn't build each one of those items through completion, and then ship it to the finisher.
- Fabricate the millwork as one batch; the ship lap paneling, the teak wainscot, the chair rail, and the base, then get it to your finisher.
- Next, build the desk, and get it out.
- Then build the bookcases, and get them out.
- Then build the bed, and get it out.
Individually, these do not sound like massive, space eating projects. And I can't imagine why there would be any need to build all of them simultaneously. Nor could you, with a crew of two.
You went on to say, "Now when the on site crew gets finished they need things to work on. So I am drawing, getting a list of needed material and hardware, etc. So with one little job, all of sudden I have a number of projects in play. As we get close to the end of the office project, I better have another one queued up. If I wait because I want to reduce my WIP, I risk not having work for people when they are ready."
Nothing in that quote will increase your work in process. You are simply drafting up the next project. At the most, you'll need to have a few days' worth of material standing by. That can't be all that much for four people.
Even if you choose to run multiple projects, your company size does not sound overwhelming to me. I don't see why, with simple policy changes, you couldn't get your work in process under control without any new software systems.
What is so overwhelming for contributor Z is the diversity of the projects he lists. His shop/product is quite different from a box shop, and his problems appear to be wider as a result. As a manager, he wants to get a grip on the things in front of him, and attempt to extend control out to the decision making process and its timing, as well as the other trades and their timing. There will be times when he has to be the landmark and let them turn on his axis instead of the other way around. We all have GC nightmares and the resulting problems they make, but when we foresee the problems, we need to mention what we are seeing, in writing, and then give a gentle version of "I warned you" after the fact. After 30 years at this, it is in many ways like a Roadrunner cartoon - very predictable.
We handle the diversity by assigning each small project to one person, and that individual is responsible for the project, the quality and the timing. He may get 2-3 projects at a time of similar work. Two other shop people may get a larger project, and they will break it down into two parts, so they can work independently, together. One of the two is in charge of the project. A very large project may take everyone in the shop, with again one person in charge, but each working on a discreet part of the project, gradually coming together. We call this by the simple term "benchwork" and refer to our product as benchmade. This conveys, in both reality and a marketing sense, that one person is responsible for the project.
That does not release me from the task of wrapping up the last project - shipping, invoicing, comparing to the budget, etc., or bidding the work for 30-60-90 days from now or drawing the work to start next week and insuring materials are on hand - a continuum.
As an aside, we are all technical people on this forum/in this industry - we didn't become business people first, then choose woodworking after a careful survey of the horizon. Shoprats or wood nerds may be a better characterization. We tend to work out problems with our hands and heads, and therefore look for tactile solutions. Then there are the ever present machine dealers imploring us to buy their machine or just give up and close the shop. We have to realize that some situations are more abstract or esoteric than can be addressed by software or machine layout, and will require a new way of thinking to get that comfortable grip we need to be secure.
The 32 curved rafters we made for that project were not all the same. The ones that mounted against the window jamb did not have a small 45 degree chamfer on them. Rights and lefts. How to communicate that information to the correct people at the correct time. A team in the shop made them and a team onsite installed them. Depending on someone to remember that one little detail seems a little tenuous.
The way shops have organized since the beginning of time is to put someone in charge of it. This means you are not in charge of it and can move on to more important functions. If those functions are not being done, then whomever you put in charge of it needs to be corrected or replaced.
32 rafters at xx inside radius, per drawings pg 4A. 16 left, 16 right. 15 L, 15 R, get chamfered (1/2" width) both lower edges of the outside radius. One each of the left, one each of the right get only one chamfer each on the lower edge. Label the two odd rafters clearly for installers.
Descriptive, precise written language along with clear, simple drawings is what is needed. We have a 6 man shop and two people specifying (describing, drawing) what needs to be built. 1 to 3 is pretty much what you will find for architectural shops with this type of diversity.
It does nothing for your receivables to have 7 jobs on the floor at 4-5k each in certain stages. Money isn't moving and parts are scattered. Confusion and chaos are truly the only outcome.
Pulling the material out of the rack and seeing a produced/completed project that leaves the shop ASAP sure can press the issue of getting money in the door.
Every employee wants to be part of a professional, lean, clean, streamlined organization that can produce a finished product in a timely fashion. It allows them to take pride in their job. Reduction of WIP controls chaos and the fog that comes with too much real estate being hogged.
I didn't say reduce the amount of work, the amount of profit, the amount of bidding we do - just the amount of work in progress. From a chaotic mess to an organized chain of events that produces more cash at the end because something didn't get made three times.
When our "a-ha" moment came, so did the freedom of the chains of mental chaos hogging too much real estate in our heads.
I sure have enjoyed this thread and a couple more like it just recently. There's been one forming up about the housing market implications for all of us. No matter what your take on this, now would be a good time to circle the wagons and start re-thinking strategy.
Now might be a good time to review your credit strategies with builders. You might be in good shape, but they or their customers might not be. If things look especially rosy for you, now would be an even better time to focus on costs. Cost reduction is the best strategy because it can keep you in business when times get tough, and help you make money hand over fist when times are fat. Cost reduction is win-win in any scenario.
There have been some great observations on these threads about systems. I especially liked the input about how we as individuals self-selected ourselves into this industry. He is right about the emotional connection many of us have to the tactile side of this business. A real businessman probably would have invested in apartment buildings or laundromats before going the direction some of us went.
Contributor E's comment about how policy is the simplest constraint to break could probably use some more embellishment. I haven't had a chance to read the other Schultz's article that Pat alluded to but I so recall seeing something about an auto parts/barbeque chicken joint that sounded interesting. He's probably right about diversification. In my case that would probably mean maybe adding paint, delivery or install to a heretofore FOB our shop business model. I don't think we've drilled for cabinet handles in over ten years. Maybe we could start adding that?
Others have, on several occasions, recommended that we develop quality manual systems before looking to automating information flow. Perhaps we could use a discussion of what some of those systems might look like.
There's been some discussion of estimation/jobcosting. Without going into it too deep, I would proffer that this effort would be improved if the data collection was designed to accomplish more than just the goal of lowering estimating costs or bean counting activities. As reported, lowering WIP has helped a lot by just minimizing the chaos. It can also be a tool for identifying the real bottlenecks in your shop. We just added a module to our database program to help evaluate unit costs based on batch size. Understanding these process times is key to developing a pull system. If you don't know how long it takes, you don't really know when to start it. If you start a process at the wrong time you will either end up waiting for it or drowning in it.
And if you believe the pundits about the housing market... now is not the time to not understand these things.
On the reevaluating client's ability to pay, all of our lenders are looking at our credit scores regularly and so are our insurance companies, and they don't care if a builder screws any one of us and we are late in payments. As the financial markets get tighter on their lending methods to reduce losses, our credit scores and reports will become crucial to our financial fitness because others (insurance companies) will base their risk of loss on the history that's on your report! (They actually already are doing this.)
We keep it simple in the office.
1- bid the job
2- receive contract
3- produce shop drawings immediately
4- wait for approval
5- make corrections
6- place request for payment on materials
7- wait for field dimensions, cut, produce
8- put in for payment with changes
9- deliver
10- install
11- put in for payment
12- put in for retainage
#6, #8, #11, #12 are all payment related. I don't care who the client is, this is business and #6 comes before #7, therefore #6 can and does stop #7. We have done it many times.
Lowering your WIP and demanding a check upon completion with clients that have little history with you singles the deadbeats out quick. I've read "Theory of Constraints" and still am missing a lot of the "Theory"... But Buckely's book summed up "The Goal" quickly for me and saved me $20-$30. It's about the money at my level - that's the Goal (for me). Lowering our WIP did not cost a dime, and it actually allowed us to identify a tremendous amount of problems, quickly. Allowing the work to get out quicker gets the invoices out faster, bringing in money more rapidly, therefore creating the vacuum to look for more work from people that pay, building a core of clients that produce checks repeatedly, speedily.
I bring this up because I cannot count the times I have arrived in the morning to discover that everybody is doing bench work and nobody is running the saw (even though they will all be completing their bench work at about the same time and all but one will be stymied for access to the saw). I guess the dynamics of this would also change depending on the size and proficiency of your crew.
Regarding your 10-20 minutes to produce stock parts, controlling WIP does not necessarily mean that you don't have some buffer stock to pull from. Indeed, some processes will prosper from slightly larger batch sizes. The trick, though, is to not let the project take on a life of its own just because there is momentum for one aspect. It does no good, for example, to have one guy building 30 doors if being efficient this way keeps the next guy from hanging his first door.
Our batch size in doors is at the allocation phase. We typically blank out all the door parts (for acclimating moisture), then pull from this pile no more door parts than we will need for the next couple of cabinets on the bench. The first noticeable thing to this approach is that it takes fewer carts. Labeling of parts is almost non-existent and you don't spend any time staring at parts piles to verify that everything is cut.
One of the magazines had an article last year about a shop that was waiting for the next big job and how it couldn't make it on the smaller ones. It lost the bid to the next big one it had pinned its hopes and dreams on, and it shut its doors. If we think in terms of batch and throughput, there is no big one, just WIP and it's got to get out. We tend to overanalyze because we are caught up in the details that cabinetmakers think of and we lose focus that a business truly runs on throughput.
We build a cabinet, it's finished and sitting here in the shop - it's no longer work in process. It's invoiced and is no longer calculated as WIP. But it still takes up floor space and adds chaos to the production environment.
Let's say you do your own finishing, and invoice for product when it goes to your finish department. As soon as the product goes to finish, you invoice for it, and your WIP goes back to zero on that product.
So really there are two routes to reducing WIP. (1) Reduce batch size, improve production efficiency, or otherwise cut down on the volume of work in process at one time, or (2) Adjust the accounting and billing cycle to clear WIP from the books. The goal in both cases is to simplify the production process, improve process flow and capacity, reduce confusion, and reduce capital tied up in WIP. While most of the benefits are to be gained by doing (1), lots can be gained also by doing (2). It seems like in your process improvements, you've done well to attack it from both sides.
The article on the Multiple Projects truly got me to see the point that if we don't set up a procedure to get the work done, and get the customer to make the decisions up front, it only costs us money in precious real estate and can truly constrain jobs that need to get out the door. Hence, reducing the work in process - crap on carts - to get to the real core of why we are in business, get the work in progress out (the moneymakers that generate a steady stream of cash). The jobs that hog up real estate, that sit idle waiting on the customer's decisions, only add to chaos and since the job is idle, we can really lose momentum, focus and the goal of getting it out. All profit is lost in the move over here and there and get it out of the way for the customers that have made the decisions up front.
Resource utilization actually starts to hit home when whole regions of our country run out of water (or when whole regions of our economy run out of access to capital). Lean manufacturing will eventually have a place at the table when discussing "green" issues. (I personally believe in the Asteroid Theory, so this is just sport for me.) But nonetheless, I am impressed with the level of discourse and intellectual engagement found in this industry and on this forum. I think it bodes well for all of us.
Here's something from an email I received this weekend from the NW Lean Network:
"...being satisfied with the current condition is unhealthy for all and true respect for people comes from understanding where they are and meeting them at that point; not by trying to change them and move them to where you stand. This doesn't preclude growth and education, all it precludes is the futility of trying to teach someone what it is that will make him happy. He already knows what makes him happy and whether that something is lofty or trivial; it is not respectful to try to convince him that what makes him happy is wrong, especially when it is done with the implicit threat to his livelihood."
I was talking to a buddy of mine this morning that has spent the last 7 days fighting the Santiago fire as a volunteer fire fighter. He got about 2 hours sleep a night, went without food for 24 hour periods, and he and his wife were in harms way. A location he was defending an hour earlier was overrun by a 30' wall of flames, forcing three firemen into the fireproof tents that they use as a last resort. (They were okay.)
I don’t think money was his motivation, as they get paid $5.00 a day. I don’t think saving his own house was a motivation, because after the second day, the fire chief said his neighborhood was a goner and that they weren’t going to defend those houses. (His house did survive.) Why would anyone do this as a volunteer?
It would be ridiculous to compare woodworking to these kinds of endeavors, but to put some purpose to our work definitely would have some good effects. The purpose is to serve the customers in one way or another. Maybe not noble or great, but just the same, that is the purpose.
As a group of businesses, we have some of the most expensive consumer products in the world. We also enjoy the respect of our community. So why is there such a disconnect between these opportunities and the average level of prosperity for those in this field?
I suspect it is because most people would rather take a beating than develop management skills.
Because to a greater or lesser extent they deviate from serving the customer. Does this require better organization, equipment, skills? Absolutely. I don't think Bill Gates started out to make a lot of money. I suspect he had a purpose to make lives better through the use of personal computers. Steven Jobs the same, Steven Spielburg the same (through art), Carlos Slim (maybe not, but he has a captive audience).
Bob serves his customer better by being on time with great products by using excellent organizational skills. Contributor E, you do this by offering more variety and catering to the customer’s designs with efficient delivery of the product. The questioner does this by doing beaded inset cabinets at a leaned out and reasonable cost. The commercial guys do this by delivering on time at competitive prices. The store fixture guys by taking care of the most off the wall crazy designer stuff at a competitive price delivered on time. This is all serving the customer. Of course they pay for it, and we make money because of this, not because our goal is to make money.
I did not start making cabinets to make money, I just got sick of working for guys that were alcoholics that didn't pay their taxes and always paid me late. My business has evolved into what it is and I now choose to run it in a manner that is efficient. I hit the WIP because we had a mess on our hands, and cash was slow to get in the door. As a matter of fact I could see carts of WIP eating up precious real estate, and I could see lack of written change orders as nails in the coffin.
I changed administrative procedures and the new procedure for the day is, at 90 days of no payment, we will file a lien. Period.
Whether you like it or not, when you run a business you had better make a profit and do it as efficiently as possible. You are now here, the one in charge. Lead by example, make the hard choices, do what it takes to succeed. Even if it makes others question you, a choice has to be made as to what it's going to take to be efficient and make a profit. Lowering our WIP was just one of many.
Purpose: Reason for existence: the reason for which something exists or for which it has been done or made.
Goal: Aim: something that somebody wants to achieve.
Lots of people have a goal that focuses on service to others: nuns, Peace Corps volunteers. That is fantastic, and an essential part of our universe, just like business people are an essential part of our universe also.
I would say that the artist is usually focused on artistic release, until they start a business and hire employees, and have kids to support, etc.
I notice a lot of other residential guys who got in on the last remodeling boom here for money. Not surprising they are dropping like flies. I'm sure more of them will be ready to fleece the recent victims of the fires.
I say if you are in the woodworking business, you have the purpose of doing some sort of woodworking, otherwise your business would not exist (as per the definition of purpose). The customer doesn't give a rat's ass if your goal is to make money. If your goal is to make money and you start cutting corners using cheaper materials, to that end, I know for one I will not be buying doors from you. This is worthy of note because it keeps the business focused.
Fortunately the people working for me have as much passion for doing their job well as I have for doing my job well. We depend on each other. If they don't know what a good color match is, I am sunk. If I don't know how to hire, promote, incentivise, price, market, etc, they are out of a job.
Serving the customer does not do anything more than make the customer happy. You also have to charge enough, manage your workforce, manage your cash flow, manage your assets, market, etc. Lots of businesses serve the customer well, but fail on these other accounts, and fail as a whole. Serving the customer is just an essential piece of the larger puzzle.
There is no Dr. Jeckyl/Mr. Hyde. Both woodworker and businessman have the same goal - a satisfied customer. Both can say "that's an extra, and we will have to charge for it."
To be a satisfied woodworker, you should align your woodworking aspirations with your employment. If you want to make inlaid rocking chairs, don't get a job at a beam saw. If you want to make high end cabinets, don't pursue clients with $90k homes.
I would start out with some sort of metrics to see if your policies are creating results on an objective level. In other words, is what you are doing working or not? This is where it all starts, not from a bean counter's viewpoint, but from the customer's viewpoint.
Are your sales increasing or not? Either way, find out why. Is the quality what the customer wants? Is your production output where it should be or not? Can it be organized better? This not a one time thing, but an ongoing thing. It is called management. We get so interiorized into the business that we forget to do this.
Every organization has 7 major areas that have to function in sequence:
1 establishment - this includes marketing (creating new customers)
2 sales
3 finance
4 production - this includes training
5 quality control
6 new customers
7 executive or management
Doesn’t matter whether you are a one-man shop or 100 billion dollar organization, all of these functions have to be performed. This is why a one-man shop has a hard time. Buying the iron is the easy part (the iron is not a panacea). Getting all of these functions performed is the hard part. Why plan? There is no shortage of goals, but how do you get there from here? Plan. Why organize? Because this is how you make a plan become reality.
I think that your statement is backward. If your goal is to make more money now and in the future, serving the customer well is the by-product of that goal. You cannot serve your customer well in the long run (which is part of serving your customer well) if you are not making money now and in the future.
The word "more" does preclude this from being your purpose. After all, you can never achieve an open ended statement, but it does not preclude it from being your objective, and/or goal.
There have been plenty of companies that went broke attempting to serve their customers well, and even more that went broke actually doing it (serving their customers well). This line of thought will typically lead to chaos, which is the opposite of focus.
If our goal is to make more money now and in the future, and we are careful to measure our progress based on net profit and return on investment, then for us to continue to make more money now and in the future, we must serve our customer well. If we do not serve our customer well, it will be painfully reflected on our profit and loss statement, and eventually in our return on investment.
So to sum up, serving the customer well is the by-product of making more money now and in the future, and we already have good measurement systems in place to check and see how we are doing. You cannot go broke making more money now and in the future, which will lead you to serve your customers well. It is possible, however, to go broke serving your customers better than any of your competitors.
This may be true, but would largely be the result of the number of woodworkers/hobbyists trying to run businesses, without the same preparation on the business side as the woodworking side. Just my guess - the business aspect needs about 2 to 8 times the preparation than the woodworker aspect. Another way to look at it is: a businessman can hire a good woodworker for $35k to $45k/year (most locations), whereas a good businessman will cost $120k to $150k per year minimum. So when the woodworker tries to run a business, most often he is at a loss of skills.
I went to a major university, got the business degree in production and operations management, and after starting my own business, found there was still about 30% to 50% missing of what I needed to know, which took several years to catch up on. Most of this had to do with supervisory skills. Business schools rightly or wrongly assume you will learn this on the job, with guidance from your employer.
I still think that a 25% net profit will soon invite much competition. The right niche can achieve this, but on a larger scale of several million per year revenue, there will be too much attention to the market segment.
Businesses that don't require much capital to start are also characterized by fairly low margins. Enough capital has usually been attracted to the opportunity that price will have been beat down to what it takes to do the job.
What this couple did next provides a lot of clues for all of us. Knowing that all the low hanging fruit had already been harvested, they recognized that any remaining nutrition would have to be hidden under a rock. They went looking for an industry with a lot of weak spots.
Babysitting seemed to meet all of this criteria, so they decided to start a daycare center. Here was an industry that had lots of weak spots. It typically was low paid, so you had to be really thrifty with your overhead. Your clients were constantly changing, so your marketing division was in constant overdrive. Cash flow sucked because many of your customers didn't have any money. Government regulation was intense. (The day care center doesn't penalize you for picking your kid up late because the staff wants to go home. They do it because if a kid stays more than "X" number of hours each day, you need to have a nurse on staff.) If ever there was an industry to avoid, this one seemed like it.
What these people did was go on to produce a major chain of wildly successful day care centers. They hooked up with major corporations like Honeywell. If the company would put up 3000 SF somewhere in the facilities, these people would run a day care center for the employees. The employees didn't have the extra cost and time associated with transporting kids across town, so they arrived to work fresh and got to see Jr. at lunch. The daycare operators got free rent, and a clientele that always picked up their kid on time and paid their bill on time. The corporations got an essentially free perk they could offer their employees.
This was a win-win for everybody and it came from just mining the weak spots. Our industry has so many weak spots that we don't really have to look very far for this kind of opportunity. Without much thinking we could probably generate a list of 100 things that cost us money but don't require any (much) money to fix.
PS: I already got a lock on the doggie daycare at Microsoft.
Purpose: Reason for existence: the reason for which something exists or for which it has been done or made.
Goal: Aim: something that somebody wants to achieve.
I actually don’t think these two concepts are mutually exclusive. If the business doesn’t serve the customer, it has no reason to exist. And in our free market it will not exist for long if it does not follow its own purpose. The company can have the goal to make money and usually does, but that is not the purpose. The reason I think this is important is that this industry has a tendency to introvert the owners, i.e. focus on the processes, rather than the more important outward focus on the customer and the market. I know you disagree with this thinking and I have no intention of convincing you otherwise, but this is what is true for me.
If I am profitable over the long haul (anybody can make money over a short period of time), then I must be doing what the customer wants. On the other hand, if I am doing what the customer wants, it is altogether possible that I may not be profitable doing so, which ultimately means I will not be doing what the customer wants. The customer wants the best quality at the best price, and the customer wants it right now (no polls needed). The benchmark needed is, can you give the customer what he wants and still make a profit? Not just can you give the customer what he wants. The only sustainable business model is a profitable business model.
I and almost (not all) everyone that posts on this forum do so from the perspective of a small company. I don’t need to poll my clients to find out what they want; I am intimately involved in the process from end to end. I meet with every client multiple times throughout the process, and work for many of my clients many times throughout each year (I play golf with one of my clients almost every week, and sometimes more than once a week). I know what my customers want, and what they want is for me to be the expert in cabinetmaking design, engineering and manufacturing, and do what I say I am going to do, when I say I am going to do it, and do both every single time.
I am supposed to know more about what I do than they do, and I can’t think of anything more annoying than to have to deal with a salesman that knows less about the product he or she is selling than I do. We are not isolated from our customers like large companies can be, we are all in the loop, just ask your customers what they want while you're talking to them about their project.
If I were to listen to some of my clients, I would be doing much worse things than just rearranging the deck chairs on the Titanic. (Why can’t you make it for less money than that? Why can’t you make it in two weeks instead of four? Why can’t I change my mind after you start production?) I may just be driving the nails in my company’s coffin (some people on the Titanic did survive).
It sounds like you have already made up your mind on this subject (there is no doubt that I have made up my mind on this matter), so I suspect that we are both burning daylight debating it, but it is fun having to think through why we do what we do. If all else fails, and neither if us is able to persuade the other, at least we can say we had fun in the process.
By the way, making more money now and in the future is the goal of my company, but it is not my personal goal.
Benchmarks for the customer: sales, number of repeat customers, quality control surveys. Surveys of the customer trends. Profitability is in large part achieved by getting the right type of work. The more closely we parallel the customer the more profitable we will be. Staying busy 52 weeks out of the year sure adds to the bottom line instead of having to keep guys busy and amortizing the overhead over, say, 48 or 45 weeks. My customers can and do disappear very quickly when something is not right.
It is a given that the business needs to be profitable and of course this is not a small or easily achievable thing. House keeping on the installation is a top concern with most customers; on time delivery is vital, as you know, now everyone is cognizant of its gravity. What are the emotional reasons the customer buys a product/service? This is determined by surveys informal or formal.
It sounds like you stay in touch with the customer very well, better than I do. I’m sure that has a lot to do with your success. Staying in communication with the customer is exactly right and in my mind a form of survey.
A goal and a purpose are two different concepts. In my world it is vital to pay attention to the marketplace and the customer, as they change very quickly, not in a small way, but in sea changes. This keeps my business focused in the right direction. The mission statement of my business is to help my customers promote their service or product to their customers with attractive fixtures and displays. I would not want to have a mission statement that was: to make more money now and in the future.
The average cost for a raw cabinet and all of its parts is about $1,000. The average cost of a glazed finish is about $300 per cabinet, which includes the finish on the cabinet's corresponding parts. The average cost of the install is about $200 per cabinet, including yet again, all of the parts that go with that cabinet. It's not unusual for a cabinet job in this market to sell for $300,000.
In my company, I have 3 non-production staff, 5 woodworkers, 3 finishers, and we use an average of about 3 independent installers at a time. Historically, we have made anywhere from -30% to +30% net profits. We can make a lot or lose a lot depending on many things, none of which is production efficiency. As I clearly stated, I do not make the net income that I stated was possible. However, I need only look at those jobs we do well on to see the potential.
The point of my original post was only this: it takes surprisingly few cabinets per day to make a lot of money, depending on what market you choose to serve. If you choose to serve a market like mine, you'll find that focusing all of your energy on production efficiency will soon lead you to bankruptcy. Whereas if you focus on project management, you can make a fortune.
Contributor A, according to you:
Cab costs $1000.
Finish costs $300.
Install costs $200.
You sell cab for $1500, finished and installed. Where is your profit? Did you mean to say that those numbers are what you charge, not what they cost you?
Based on these four, only two could be gleaned from the customer. Sales and repeat customers are information we already have.
The quality control survey may or may not be useful, depending on who fills it out (homeowner as opposed to a realtor in my portion of the industry, or an owner as opposed to a clerk at a retail establishment in your portion of the industry), discernment would definitely need to be used to distinguish between good information and bad, regardless of who filled it out. Again, I am a small company, and as such, I am not shielded from any quality concerns my clients might have. As a matter of fact, I am the point man for quality (all calls come to me).
We do get a few quality calls from time to time, but the majority of complaints are about damage caused by other trades, not problems with our quality. In my opinion, how I handle these calls is what reflects my commitment to our customer, not that I asked them their opinion. I think our lightning fast, no questions asked repair of damage caused by other trades is valued more by our clients than asking what they think about the situation.
The last one seems to be something that is more my responsibility than my clients'. They expect me to know what the trends are, and to be aware of the direction trends are taking. My experience has been that I am the one that is supposed to be reading the trade journals, design magazines, attending trade shows, and being a member of trade associations to keep myself abreast of the trends. I find myself having to drag my clients into the latest trends, not them dragging me in (maybe this is a problem for cabinetmakers in general, and I am just not aware of it). I think we should be revealing the latest trends to our clients, not our clients revealing the latest trends to us.
You stated: "Profitability is in large part achieved by getting the right type of work; the more closely we parallel the customer the more profitable we will be. Staying busy 52 weeks out of the year sure adds to the bottom line instead of having to keep guys busy and amortizing the overhead over say 48 or 45 weeks."
I agree with you wholeheartedly here. Filling our production to the desired level is the only way to amortize our overhead as needed (this is a huge problem in our industry). Getting the right type of work as opposed to just anything to keep our guys busy is critical to success, and providing what our clients want is one of the paths to get there, but I am not so sure my clients know what they want to the level that I need them to know (again, I find myself educating them on what they need and want, and they pay me handsomely for doing so).
You stated: “My customers can and do disappear very quickly when something is not right.”
Mine do too, so I suppose we better get everything right. Apparently your portion of the industry is very different than mine, but I have to wonder if you’re not allowing your infatuation with collecting information from your customer to put you a step or two behind your competitors. I know that my clients depend on me to be the expert, to know the trends, to know what finishes are the latest fashion, to know what appliances are the best for their application, to know all of the counter surface options, and how they relate and interact with our cabinetry. One of the most common comments I hear in our showroom is “I will know what I want when I see it.” This tells me that they know what they like, but they can't tell me what they like, so I better know how to extract that information from them.
One last comment. As far as surveys go, I find the vast majority of them to be useless. They typically only have options that are not what I want to say, or only lead to where the surveyor wants to go. The only way a survey could be really good would be to have a completely neutral person design it, but that completely neutral person would be ignorant of what needed to be asked, so I see a tiny conflict there as well.
If you don’t mind patronizing me, could you tell me your primary objective of a typical survey? Who specifically do you target? What percentage of the people you survey respond? How many things have you changed about your company based on the results of a survey, and over what period of time did the changes take place? Have you seen a direct relationship between these surveys and a positive change to your net profit? If so, how much? Have you seen a direct relationship between these surveys and a positive change to your return on investment? If so, how much?
Is it at all possible that these surveys are a lot like MRP and ERP software solutions; they are only needed, and can only provide a return on the investment made for companies of substantial size? I ask this based on the fact that the vast majority of us spend considerable amounts of time with our customers (designers, architects, builders, homeowners, storeowners, etc.), so why not just ask the questions you would ask on a survey in person? At least this way you can get some real time feedback. I can see where the leadership (decision makers) for very large companies (3 to 5 million in sales or more) could become shielded, or even oblivious to quality concerns, and that a survey may help them, but I just do not see where a small company needs to do it. What am I missing here?
I have surveyed to determine which types of jobs/customers make me the most money. What areas have the type of customers I want to do business with. I have used surveys others have done. Dial One franchises did a survey to determine how the residential customer determined if a tradesman did a quality job. They found that the customer based most of their opinion on whether or not the tradesmen cleaned up after themselves or not.
I have surveyed customers to find what the emotional reasons were that they purchased new countertops. I determined that the lady of the house was tired of the color. I have surveyed store fixture buyers to determine that the buyers wanted: To attract more buyers, make products look more attractive, better visibility, quality work, on time and at the right price. I use this in my marketing materials. I have done what is called a positioning survey as per the book: Positioning: The Battle for Your Mind. I use the tag line of the Image Crafters. I look at trade mags and business mags for trend information. What machine is the best one to buy? Reading the want ads to see what industry is expanding. If the want ads have more architectural positions open, that is a good sign for the construction industry. What age are the buyers of cabinets? Tracking the baby boom tells us when demand is going to go up. What areas are growing? And others…
Regarding quality control, we have shipped out product to customers (3000 miles away) where we didn’t do the installation and there were problems I didn’t hear about until months later. A QC survey catches this. A lot of the work I do I never speak to final customer. Some of the work we do I don’t know who the real decision maker is. This thread digressed into what is the purpose of a business. To that end I think surveys are very relevant. They are best done in person. I don’t view this thread as adversarial, but a comparison of viewpoints. Which really is the only way to evaluate the value of information. A survey is a tool to measure the customer’s viewpoint. I’m just saying it is important to look. Sounds obvious, but I know I have been asleep at the wheel more than I care to admit.
Even net profit is not sufficient. If I were able to make a net profit of let’s say $225,000.00 for the year 2007 on sales of $800,000.00, on a scale between 1 and 10, where would this net profit level fall? On a scale of 1 to 10, where would a 28% net profit fall? If it were achieved with an investment base of, let's say, $200,000.00, then that would be pretty darn good, would it not? Most of us would not consider a 28% net profit, with a 112.5% return on investment too shabby.
What if my investment base were 4,000,000.00? Now how good does that same 28% net profit look? I don’t think we would be able to convince our banker (or outside investors) that a 28% net profit was a very respectable number if we also revealed our .056% return on investment. We simply cannot extract this kind of data from anything other than fiscal information.
As I said earlier, we need to know where we stand, and our fiscal health can only be measured in dollars and cents. We need to know where we stand in the marketplace as well, but we can go broke knowing were we stand in the marketplace, and not even know we are going broke (it happens every single day). But, on the other hand, if we are making more money now and in the future because of our good fiscal planning and execution, then we have to be doing what the customers want, and not only that, we can afford to determine what our place in the marketplace is.
A friend of mine had an ironwork business for 40 years. The market got filled up from the immigrant labor, so he shut it down and went to computerize detailing for other shops. A friend of mine had a tile business for 35 years. The class action lawsuits got so bad that they could no longer make a profit, so he shut it down. The guy I bought my plam counters from was in business for 30 years. Plam got replaced by stone. He shut it down. A shop I worked for got up to 70 million a year. The market changed and he declared bankruptcy. Some friends of mine determined that to operate in California was just too expensive. They moved the shop out of state and put 250k on the bottom line without doing anything different.
Whatever acronyms are used to organize the business, a key is not to become an anachronism. Of course you have to organize your business, but assuming it will stay the same for me is a mistake. Are there any easy controls for this? No, but looking sure helps.
