4 ways to keep costs down

By Clark S. Colvin

things that sit quietly on their shelves for six months or more. This cornucopia of inventory may look good in the store, but it doesn't help you if most of your customers are contractors. A retailer in this situation needs to remerchandise, by returning slowmoving inventory and stocking up on what their core group of customers wants. No retailer can be all things to all customers, and there's no sense. or cents, in trying.

L"sson 3. Centralize production and purchasing for economies of scale.

fT'S EASY for a lumber retailer to Iget into financial trouble these days. I'm a turnaround consultant, and nine times out of the l0 the reason I'm called in to help them is out-of-conftol costs. Sometimes the costs of running a yard can jump so high and so fast that they cause profits to fall even when sales revenues are increasing!

Unfortunately, keeping a lid on costs is easier said than done. But while cost control can be difficult, it isn't impossible. Here are a few lessons I've picked up over the years that will help you wrestle your costs to the ground and get out of the red ink and into the black.

L"sson 1. Understand your company better by creating an organizational chart.

If you want to make a serious stab at cost control, the frst thing you must do is create a detailed organizational chart, complete with precise, writtenout job descriptions. This will force you to look at "the big picture" of how your company as a whole operates.

A detailed organizational chart focuses on the "human element" of your company. As you construct your chart, you'll have to make some decisions:

. The number and types of personnel needed to perform all your business's specific activities;

. Detailed job descriptions, focusing on work behavior, and

. Work flow for maximum effectiveness and efficiency.

It's sad but true:

most of the dealers I've worked with don't really know who their customers are, or what they want.

Creating an organizational chart of your company obviously takes some work. It also pays some immediate dividends:

Easier budgeting, and better cost and technical control:

Greater manpower flexibility, and Better inter-company communication and understanding of policies, procedures and lines of responsibility.

An organizational chart allows you to actually see with your own eyes how your company fits together, and makes it easier for you to quickly spot those areas that need your attention.

L"rson 2. Knowing what your customers want can reduce unwanted inventories.

It's sad but true: most of the dealers I've worked with don't really know who their customers are. or what they want. Too many try to be "mini HombBases," carrying lawn and garden items, power tools and other

Centralizing your company's purchasing and production functions will often achieve the types of economies of scale that reduce your costs enough to keep you out of the red.

Too many lumber retailers handle the essential function ofpurchasing in an informal, haphazard manner. I've seen $35 million-a-year companies where it seemed that everyone's cousin was responsible for purchasing. And, boy, did they make a mess of it!

Putting one, experienced person in charge of purchasing can save hundreds of thousands of dollars a year.

L"ssot 4. Link employee compensation to performance and reduce overhead.

Tling pay to performance means reducing base salaries and offering high incentives. Not only does a compensation structure of this kind reduce overhead costs, it also increases productivity. When I changed the pay structure at a lumber retailer in Utah where I acted as interim c.e.o., staff was trimmed from more than 60 to a more manageable 46. In addition, I was able to hire two very experienced managers away from a competitor, and everybody in the company ended up earning more money than they did under the old compensation system.

Compensation based on performance isn't for everyone. Some managers and staff rise to the occasion, while others fall down on the job. It's always interesting, and sometimes surprising, to see who succeeds and who fails.

By applying these lessons, a lumber retailer can avoid trouble. Once costs are under control, you can focus on pumping up your sales volume.

Clark S. Colvin is a Salem, On-based consultant specializing in corporate restructuing and tumarounds. He has worked for clients in I I states, Canado and Great Britain.