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The need for outsourcing in the new economy

9/28/16       
Jeff Finney Member

We have been a custom cabinet maker for about 12 years now. What I have been noticing in the industry, post recession, is the need to outsource for most small shops. I have committed my business to automating as much as possible, and making standardized systems for everything we do. In doing this we found our company was changing into a niche component manufacturer rather than a custom job shop. This transformation has had a profound effect on how I look at our industry and the way we cabinet guys generally approach it.
If we step out of the collective bubble that most shops live in we would probably find that most guys do it similar to the other in most aspects. By this I mean that the owner does multiple tasks in trying to grow their business and take care of customers. So, what if the modern cabinet maker was more of a business person than a carpenter at heart? What would that look like? I believe it would look like a more normal business! Think about it, look at all the "hats" you wear in your everyday business life. Now look at other businesses around you and you will mostly see businesses that specialize in a small amount of things. They have laser focus on the things that make the business grow, and most importantly turn a profit.
I have a great example for you to hopefully get your wheels spinning. About a year ago we were milling custom cabinet packages for a new shop in our area. The owner of the shop, we will call him Jim, had a great following of customers but did not have a lot of manufacturing experience. So, he hired us to make his job packages. We supplied him with a ready to build package that consisted of face frames, doors, drawer packages, box parts (with all operations including locators for rear mount brackets!) and moldings. Jim bought his own functional hardware and specialty items i.e. rev-a-shelf or decorative wood items. During this year of working with Jim we would go over how the numbers were working in his business. As a little backup, Jim only did unfinished raw cabinets so for the following example there will be no considerations for finishing, it will just be for raw cabinets. Jim revealed to me that by the time he paid for his package he had spent about 45% of his job budget. From previous experience functional hardware generally is about 5% of the project total. I will not count specialties and decorative wood because I would assume that most shops put an add line on the quote for these items. We will just keep it at the base set of cabinets for this exercise. So, if you have all your parts and hardware at 50% of the total you still have half the money to finish it up. With our packages everything is dado construction including the boxes into the frame. They are quick to assemble, usually an experienced carpenter can assemble a 60-70 linear foot job in a day that would include a laborer to outfit the cabinets as he built. With some fluff let's say that eats up another 5% of the job. If those same 2 guys load and deliver it that will eat up another 2.5%. Tallying all that up we are at about 58% of the job total and we are built and delivered. Now, add a 25% net profit to that and you are at 83% leaving 17% for overhead. I would assume that once your shop is deleveraged from equipment leases and machinery breakdowns that your overhead could easily be less than 17%.
Final question, what does this do to your business? Ultimately, it releases you the business owner to properly take care of your customers and simultaneously grow your top and bottom line. By fixing 95% of your costs you can accurately quote jobs knowing how much money you will end up with at the end of the day.
To summarize I believe that outsourcing is not a trend, it will become the standard way to do business in the not to distant future. It has the potential to revolutionize our standard business model and make cabinet making a profitable fulfilling business like it should be! I would love to hear your feedback about my example or any other dealings you may have had in outsourcing.

9/28/16       #2: The need for outsourcing in the new ...
Mark B Member

"What would that look like?"

It would look like exactly what we have. Corporate cabinet shops that staff designers and draftsmen to work within the current design trends and deliver product that makes a profit. Perfectly fine for the mass market.

A true custom shop (in my opinion) is a different animal. Its a shop where one, or perhaps a couple of individuals, have "the vision" and go into a project and create something somewhat specific to that customer, project, layout, and so on.

Fully sub'ing out the process is already in place. The question becomes when you do that how do you make yourself different from any other Joe Blow around you.

9/28/16       #3: The need for outsourcing in the new ...
Jeff Finney Member

I think everyone has their own opinion of what "custom" really means. If you are a niche type shop that will only provide long-box or a design similar to that then outsourcing your cabinet components does not make sense. I believe the majority of the market is a semi-custom which we would define as building a box to any dimension but only to a max length before splitting it. This semi-custom is the ideal market that I believe should be buying all of its cabinet parts rather than making them.
As far as them not becoming like every "joe blow" as you put it, I think that comes down to how you view your product. If you think of your product as a commodity, then yes i think you will just be a different shade of the same color. But if you position your product as something special or unique in your market then you are setting it apart. In other words, if you were worried about blending in with everyone else that buys parts figure out a way to add additional value, i.e. conversion varnish finish, adornments, and maybe most importantly a great design. A great thing a shop could do to set apart would be offer a hands down awesome customer experience. With things like mail chimp, wufoo forms, and zapier you can automate about any repetitive process and look like a hero to your customer. When you really get down to the meat and potatoes of cabinets 80% of them are the same time after time, and utilizing outsourcing to save money and time could be the difference in making or losing money to some shops!
Thanks for the reply I have been wanting to have this discussion for quite some time.

9/28/16       #4: The need for outsourcing in the new ...
Ted

Jeff, I find this topic very interesting.

As a custom shop owner who has found it worthwhile to outsource wood components, cutting, and finishing at times I do believe in reality a company that is dedicated to making, let say, dovetailed drawer boxes, will do it to a higher quality and a lower price than we can.

But, it is not as easy as that. I've found that it is very important to weigh some of the variables such as: Speed of product delivery, ease of pricing / project, ease of coordinating order, shipping costs, receiving and organizing components, and unique variables (wood species, sheen, you name it) that may invalidate the effectiveness of the outsourcer. We have in the past outsourced cabinet case parts, and if one part was wrong or broken you needed to wait for a new part to come. Once we started using the CNC this was no longer an issue, and I would think it a huge pain to go back the way it was before.

9/28/16       #5: The need for outsourcing in the new ...
rich c.

Didn't the new economy start approximately 6 years ago? I started outsourcing in 1988, which economy was that?

9/29/16       #6: The need for outsourcing in the new ...
JM

Here is the problem with deciding to start outsourcing cabinet boxes......shops are already set up to produce them, meaning we can likely produce them for the same cost as you, leaving that profit for machining parts in our pocket. Since we sell lots of cabinets, we are able to hit the ecomonies of scale to make it feasible. Lots and lots of small shops are now setup with a CNC and edgebander.

The quantity of dovetail drawers, or doors that our company would produce is very low relative to a dovetail or door outsource company. Setting up to produce dovetails or doors in house doesnt really make sense for the small shop as the ROI on the equipment to produce these will be too low. The dovetail or door company gets to spread that capitol investment over many many small companies door/drawer needs, thus the small company cant compete with the outsource company.

There is certainly a market for outsourced cabinet parts, its just not the typical cabinet shop that will be your customer. You need to find new start ups who have yet to purchase the CNC/edgebander, or another small type of cabinet company I have run across a few times. This being a company that currently sells a "factory" line of cabinets but is frustrated by the costs associated with anything that is not in their catalogue. We have a couple companies in our area that specialize on the low end market with "factory" cabinets. To hit the semi-custom market, they do exactly as you suggest and outsource everything and simply pay an employee to assemble parts.

We are a small shop, 3 of us, hitting the semi-custom market, doing just under a million in sales, at the rate of about 40 kitchens per year. We have a kitchen full of parts in a morning ready for assembly......and these parts are being machined by the same person that is assembling the last job to be cut. This is not our bottleneck. It makes no sense for us to outsource cabinet parts.

We outsource doors and drawers. At the 40 or so kitchens we do in a year, we cant justify the space, labour, machinery, or tooling costs to produce these.

Our bottleneck has always been finishing, and I would suspect this to be true for almost all small shops. We have tried outsourcing finishing, but the logistics of moving parts back and forth just didnt work very well. Growing my business would involve adding a second booth and finisher to try and keep up with the router.

The reason for my long winded reply is, as I read your original post, I suspected a bit of a sales pitch. My reply is to help you narrow your focus of customers who may actually want to purchase your components. Look to the small shop that does not have CNC, look to the small company just starting, look to the shop selling a line of "factory" cabinets and sell the system of outsourcing, look to the busy shop who may need the extra capacity.

Hope this helps, and good luck.

9/29/16       #7: The need for outsourcing in the new ...
Jeff Finney Member

Thanks for the replies!
Ted-I have been working the last year focusing on the very problems you spoke of, primarily schedule and ease of pricing. We are not to far from launching an online ordering that is stupid easy. It will also be able to upload from cabinet vision which will be a huge time saver. I have noticed in the past that simple pricing is the only way to make a lasting impression so we price everything by the sheet, basically a fixed price per sheet.

JM- I definitely was not trying to come across as a sales pitch I am purely in this for other peoples views, just like we are doing now. I believe you are right to a certain extent on the target market for people that would outsource boxes. However, I believe that just like the door builder, and dovetail supplier the efficiency we gain in having faster CNC's that are fully automatic with labeling, fully automatic edgebanders, optimizing defect saws and so on should translate into savings for the cabinet maker. Also, just like the door builder we are able to buy material at a cheaper rate just because of the quantity which lessens the effect of the mill charge.
There are a lot of cabinet shops out there that finish, including us and it always seems to be the bottleneck. Just out of curiosity would it be the bottleneck if you were outsourcing your boxes and those guys that are cutting would just finish and build? Would you be able to sell more product and grow your business and enjoy the same or better profit percentages you do now? Not asking as a sales pitch but honestly asking the question, which way produces more left over dollars at the end of the day?

Man I am loving this conversation, thanks for chiming in this is great stuff!

9/29/16       #8: The need for outsourcing in the new ...
james mcgrew Member

I post as i want to read this further

9/30/16       #9: The need for outsourcing in the new ...
Jeff Finney Member

I would love to hear from a shop that is not only sourcing their doors and drawers but the boxes as well. How does it work in your system? Are you getting solid, steady returns? How is the ordering process and pricing process? Is it a quick turn around? Has outsourcing provided you with the opportunity to either grow your sales, or your free time!

9/30/16       #10: The need for outsourcing in the new ...
jonathan mahnken

I havent ever really considered this as an option in the past as we have always prided ourselves on being a "one off custom shop" but over the last couple of years it seems like advancements in tech and production have enabled the large manufacturers to be almost as flexible as the custom shop. Then yesterday I received Decorative Specialties new catalog and they are offering cabinet components, custom finishing ect... And while I know they have been doing this to some degree for years it seems like now they have it down to a pretty good system. I am more interested than ever in at least providing this as an option in my shop. While many of my cabinet sets are very custom, there are still many jobs that I do which are pretty standard, and many times if find myself having to copy "factory finishes" because its what the customer saw in a catalog or friends house

9/30/16       #11: The need for outsourcing in the new ...
jonathan mahnken

Also I have really been longing for a cnc router for the last several years, but maybe outsourcing is the better option?

9/30/16       #12: The need for outsourcing in the new ...
james mcgrew Member

I have done plenty of this, the USC footbal staduium was far over our heads, i bid i won then got a larger shop to collude sold them the case work portion kept the custom and install, Made money and had a very large experience feather in out portfolio.

We also did two large Amazon distribution facilities, hundreds of case each, went like clock work.

we also keep smaller work it allows us to go up or down with the times and work. we are constantly using the cnc and all other machinery

9/30/16       #13: The need for outsourcing in the new ...
Jeff Finney Member

Jonathan-I hear ya on it seems that you are seeing more of the cabinet components creeping in. An i think it is exactly like you said with the better material handling, faster CNC's we can better support a part cutting operation. For the people like you that are looking/wanting a cnc i think it (outsourcing) is definitely worth looking at very seriously. At first it seems counter intuitive but the more you think about it the numbers just work. Anytime you can all but fix your costs and maintain a healthy margin you will be able to grow your business and brand at will. Basically, instead of using every spare nickel upgrading your machines and equipment, or hiring another "employee" that doesn't care about your vision, you can spend it on your business. Feel free to private message me if you want to talk.

9/30/16       #14: The need for outsourcing in the new ...
Hen Bob Member

We operate just like the poster JM. Again the bottleneck is the finishing.. When it comes to a sales pitch I just push more prefinished products that can be outsourced instead of finished in house. Our numbers are very similar to his as well..

9/30/16       #15: The need for outsourcing in the new ...
jonathan mahnken

Lol and here in my shop finishing is one of the fastest things we do. Because we are so small, large scale production( the occasional very large home) can really swamp our boat

10/4/16       #16: The need for outsourcing in the new ...
Jeff Finney Member

Hen bob- sorry for the late response I was out of town a couple days. I understand your concern on the finishing bottleneck. I assume you must build face frame cabinets as most people that do have the finishing bottleneck. My response to helping you with that bottleneck is the system we use is a dado face frame with a 3/4 scribe that can accept an applied finished end. Great part about our system is was designed around prefinishing all the parts then assembling the box after finish. We use a pre finished plywood for our non exposed interiors. The other great point about finishing your parts is that you can get a superb finish by spraying everything flat. Just something to think about if finishing really is the bottleneck. I would love to hear your response.

10/4/16       #17: The need for outsourcing in the new ...
Hen Bob Member

Jeff,

We actually only build euro box cabinets. the only face frame stuff is to match an existing cabinet ( so about 1% of the total volume) 60% of what we produce is all melamine/ thermafoil no problems there. Its the 40% of the rest is all painted cabinetry. Like your system every piece is sprayed flat and assembled after finishing.

Like the other posters have said look for the guys just getting going that don't have the equipment to mass produce yet.

10/16/16       #19: The need for outsourcing in the new ...
Pat Gilbert

The guys around here want around $140 a lin ft for the parts unassembled. 3 different shops.

CNC does not improve the speed of square cabinets as much as their pricing would indicate.

I think there is a fallacy that CNC greatly speeds the production of simple cabinets.

For sure it is a great help in circular shaped cabinets.

10/16/16       #20: The need for outsourcing in the new ...
jonathan mahnken

Pat i have been tire kicking cnc routers for some time now, I have been wanting one pretty bad, and this is the conclusion I have also come to. Ive watched the demos, talked to owners, timed the demos ect... and unless you get a high end panel processing router its not all that much faster for square boxes. The top end machines really do haul ass, to the tune of around 1 sheet every 4 minutes.The cnc guys advertise that cnc cut parts are far more accurate, superior, fit better. I say it depends on how well your machinery is set up and who is operating them. Square is square and 24 inches is 24 inches. My frames always fit my boxes and my dados, generally speaking, always fit just right. Im beginning to think that the hot combo for square boxes would be a vertical panel saw or automated beam saw for high production, line drill/construction drill, or point to point for high production, and a case clamp. What are your thoughts?

10/16/16       #21: The need for outsourcing in the new ...
Jeff Finney Member

Guys I've got to firmly disagree with some of what you are saying. First of all pricing by the lf in my opinion will make it hard to make money on every job. But I'm sure there's another thread about that on here. However since you referenced lf pricing at 140$ that sounds to me like they are a Millwork shop that produces cases and fills in with cutting parts on the side. Parts should not cost that much if you're just using standard materials. I think the opportunity in outsourcing cabinet box parts is the huge reduction in risk and fixing your costs that are generally extremely variable. I would urge anyone that's looking into having parts cut, look for a shop that specializes in part cutting and not servicing their own custom work. Basically at that point you are feeding the competition. Find a partner who's success is dependent on you being successful.

10/17/16       #22: The need for outsourcing in the new ...
Pat Gilbert

Good point Jeff, you are right with 2 of them one of them is Decore Door.

10/17/16       #23: The need for outsourcing in the new ...
Pat Gilbert

My thinking was that if you consider that cutting up the sheet is about equal to loading running and unloading a sheet in a router.

This leaves the grooving and hole drilling on only the ends.

Admittedly the router can do these steps faster.

But how much of the drilling and grooving do you have to do in order to pay for a 6 figure + investment?

If you are doing things other than square cabinets then the router is the way to go.

10/17/16       #24: The need for outsourcing in the new ...
Jeff Finney Member

Pat
To some extent you are helping prove my point. The huge investment of a router, beam saw, point to point or whatever you get is very hard to pay off for most normal size shops. By outsourcing all your standard cabinet parts you are fixing your costs and getting all the benefit of cnc without the risk/debt service. How do you mill parts now?

10/17/16       #25: The need for outsourcing in the new ...
Pat Gilbert

That would depend on your price.

12/14/17       #26: The need for outsourcing in the new ...
Collin Parker  Member

Website: heritagewoodwright.com

We moved to Cnc about 8 months ago. Custom built-ins and no interest in kitchens or commercial work prior... cut everything on altendorf slider/Blum line bore etc... And Iíd never look back. We had dabbled in commercial using RTA from a very reputable domestic provider, and the only reason we could justify was due to commercial pricing. No way we could ever buy them for residential work budget. Outsourcing is such a loss when it comes to almost everything except specialty accessories(rev a shelf type things) and finishing. I include finishing not because ppl outsource, but because if I could I would, biggest headache in mine and any shop I know.
Long story short, machines change over time. My father talks about ďback in the dayĒ hand tools and his father probably did the same. So the real question isnít whether or not to outsource, most everyone outsources what they cannot produce better and cheaper than what they can buy, but what do you want to do for a living? Are you a carpenter or a sales rep/assembler for someone elseís product? Personally Iíd buy 5 more cncís if I felt like dealing with the corporate style level of volume, but I still enjoy the craft and allocating my time accordingly.

12/14/17       #27: The need for outsourcing in the new ...
Collin Parker  Member

Website: heritagewoodwright.com

Ps... be ready for the prefin box cab bubble to nose dive. Even if you buy domestic, most providers operate at current prices using imported materials. If you havenít moved towards in-house domestic mfg then you are already behind the curve and will be blindsided by upcoming price hikes trickled down from the lack of cheap materials in the supply chain.

7/26/20       #28: The need for outsourcing in the new ...
OBP Member

Outsourcing is controversial and often politically manipulated to make claims about job losses in Australia. Outsourcing is a rather new practice in the world of business which makes a public opinion about it rather controversial. There are many people who say that outsourcing takes away jobs that could be taken by the youth, however, there is also a good side to it. What those people do not realize is that this practice helps small and medium businesses survive in modern economic realities.

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