EXCLUSIVE MILL REPRESENTATIVES

necessity say some things whicl-r I have said on otlrer occasions, but since the reasons are still with us and not corrected, I think they should be repeated.

One of the most important old time reasons for our low gross margin is the fact that the goods we sell have no individuality. Your 2x4's are no better than ours, in fact, they may have come from the same mill and off the same boat. Goods that have no individuality tend to seek the lowest going level. Many of those industries I mentioned n'hich rvere making the big profits are producing distinctive things. There are many talking points about a Hotpoint refrigerator that cannot be said about some other make. Two bakers can take exactly the same quantity and exactly the same quality of shortening, eggs, sug:ar, milk, llour, flavoring, etc. and each make a cake of the same size. On one corner, baker "A" puts up a sign "Cakes 90 cents" and on the other corner baker "B" puts up a sign "Cakes $1.00," and yet )'ou may, after a few days, walk right past the baker with the 90 cent cake and pay $1.00 for one. Why ? Because of some little touch-some little individuality. But can you put up a sign no your corner "fl Common 2x-l's $100.00 per M" ar.rcl have anyone come over to you and pass up the fellow rvith a $90.([ sign? No! You as a lumber dealer are bound in a short time to sell your 2x4's grade for grade for the price your neighbor does, irrespective of what he knows about his costs. But, 1'ou say, he vvon't sell for $90.00 very long; he cannot afford to. Unfortunately, the other dealer thinks he can and usually doesn't knolv that he can't until the end of the year when an inventory is taken. Unfortunately the lumber dealer cannot earmark most of his goods and cannot cost his sales and know with accuracy how much he is making or losing periodically like a department store which marks its goods, or other Linds of businesses where inventory taking is not such a task. Any of you who have worked with average per M or p€rcentage monthly prol-rt and loss reports know the erroneous results those systems can sometimes show. Dealers in an industry which handles goods that have no individuality need to support and maintain a strong association.

Speaking of costing difficulties, I think one of the reasons for low prices and low margins is the prevalence in our industry of "stop watch" cost accounting. You stand in front of tll'o good men, one an orderman and one a helper, building up a mixed load of 4x6, 2x6,2x8, 2x4 or lx6 on a house job and figure their time at the scheduled rates. You figure it costs $2.43 per M, but what does it come to at the end of the year when the total footage sold is divided into the loading labor-almost double as much. The payroll time for resawing 2x6 is about $1.26 per M, and surfacing 2x4-2x6 is about $1.56 per trI, but what a difference when the end of the year comes and you divide the footage milled into your milling costs-more than double as much. The lost time or lvasted time and all the other expenses are factors that are too often overlooked. Another fallacy in the same category is standing in front of a lift truck or hammerhead crane and usually taking the men's time consumed as the cost of unloading a car. These "stop I'atch" costs must be part of the reason for the low prices quoted on some volume jobs.

Then certain dealers continue to sell some item at a lou' margin because they say it has a fast turnover. Nlost dealers and many accountants confuse turnover with an increased volume. You don't sell any more goods because a commodity has a high turnover. It can be definitely shown that if you can carry the inventory you are dollars alrea<l to sell a commodity that bears 25/o gross profit and turns one time in a year tlran to sell a commodity that bears l?fl/o gross ptoht tnd turns one hundred times in one year. I hasten to add, horvever, that the rate of return on your investment may be mrrch higher providing, of course, that your cost of doing business is less than the l2%%. I want to reiterate that you can turn 1'our inventory in a commodity a thousand times but when the end of the year comes, if your gross margin in that commodity is less than 1'our cost of doing business on tl.rat commodity, you w-ill have made a loss.

For many years we have had the "Don't Touch It" sales, and still lrave them. Some manufacturer or wholesaler or broker wants to deliver direct to the job and give you a gross pofit of 5% or 7% on sales. You have your office, yard, equipment, and a certain number of employees, and you could have handled that business and made tlre regular gross margin with which to pay your set expenses. Due to the grorvth of thc lumber indrrstry in Northern California and due to heavy fast trucks the "Don't Touch It" sales are becoming more alarming. At one time it was confined pretty much to specialtf items. The direct sale from a sawn-rill through some dealer has occurred with more frequency in the past year. It won't be long before the sawmill or wholesaler getting a taste of this sort of thing will by-pass the dealer entirely. In fact, in this connection we have been informed that two very large jobs in the San Fernando Valley are being sold by a broker and are to be deliv' ered direct from the north. It is my opinion that the builder cannot receive the proper service and would be better off to buy from local yards. If the jobs do go through satisfactorily, it will be because the dealers in Southern California pull their chestnuts out of the fire u'henever shortages occur and when hard items are needed. Quite often too the contractor uses the broker quotations to get the legitimate lumber dealer down to a handling service fee basis on price, knowing that the broker could not give the necessary service.

.{nother important factor leading to an unstabilized condition in our inrlustry is the great increase in the number of tract jobs in the past feu' 1'ears. They call for such a volume of material that the dealer probably using some "stop watch" cost accounting, figures he can afford to sell it pretty cheap. \\/hatever the reason, the facts are that more often than not, they are sold on a handling service fee basis. They also have the effect of breaking prices on commercial and other jobs. The contractor to whom you quoted a handling sen'ice fee price on a tract job todal'can't understand rvhy you can't sell a commercial or even a single house job for the same price tomorrou'. If you sell the franres or the sash and doors on a tract job you sell them also on a commission fee basis. Then, because you have sold the lumber on a handling service fee basis and find that you just cannot come out, the next step is to resort to salting of grades. This has brought about a condition in our industrl' n'hich is unstabilizing, to say the least. On account of these and other reasons I do not believe that tract jobs are tooked upon u'ith favor by most dealers. If I asked the dealers in this room, w'hich they rvould rather have permits for, in their town or city-a permit for a tract of five hundred houses or permits for 6ftf individual houses, I doubt if there r,l-ould be more than three or four hands raised in favor of the tract of fir'e hundred houses in preference to 6ft-r- individual houses.

As I stated in the beginning, the dealers in Southern California, the dealers belonging to this association, and the directors and officers of the association do not, and n'ill not, have an]'thing to do u'ith any pric.e agreement. In the first place, it is illegal, and in the second place, due to the varied operations it rvould not work any$'ay. But dealers do believe that many of the abuses can be corrected and the industry be on a higher plane.

As I stated previously, one of the reasons for our unstabilized condition.is the fact that each dealer is pressing volume in order to tr!' to ofiset the increasing cost of doing business,-and of course it is having the eftect of decreasing the industry's gross margin and net margin. For thirty-five )'ears I have been analyzing the y'early results of the yards which our company has. Each year I cdl each manager in separately and for a period of about two hours go over his past vear's work, volume of sales, gross margin on sales and expenses to sales. I have certainly received an education on what it takes for a lard to shorv a profit. Our yard managers are just like any group of lumbermen, some of them do a large volume and make a lo*' gross margin, sorne of them do a lorv volume and make a high gross margin, and some of them do a pretty good volume and make a pretty good gross margin. My opinion is that over a period of time you are better off to be content with a prettl' .good volume and make a pretty good gross margin. If dealers generally rrould recogrrize the truth of this statcment and b€ content u'ith their fair share of the volume it would be a very important step in stabilizing our industry.

To my mind, one of the most important $'ays to achieve stabilization in our industry is illustrated by a story of an actual experience that I'd like to tell. I told part of this story in San Dego at our conference in September of 1951, and I realize it is a little corny, but nith your indulgence I s-ant to repeat it. \Vhen I was a kid I lived in Redlands. Quite often on Saturdays, about this time of year, a bunch of kids would go to the Santa Ana River wash between Redlands and High- lands. In those days, before orange juice, only the best oranges n'ere shipped and the balance r,r'ere dumped in piles in the wash. We had trvo games $.e plal'ed, one rvas to choose up sides and have an orange fight, and t-he other u'as to play "follow the leader." On one Saturday the kids chose a leader and he proceeded to walk them right through pile after pile of squashl' oranges, and right on over the bank of a deep ravine and on to the rocks below. If he can do it I can do it too. that was the spirit, and many a kid was hurt on those rocks and manv a kid got the devil from his mother about his ctothes. Later on thit day another leader r,r'as chosen. He led them up the bluff out of the wash to the high level ground and into a fine orange gove. It looked as if this leader was leading the kids to swipe a few oranges, but instead he led the bunclr up to the ranch house, rapped on the door, and said to the rancher, "\Ve hear you got the best oranges in Redlands and we a'ant to try them." "Sure," the old man sai{ "go help y.ourself." \\'hat a difterence in these trvo leaders, one of them leading you through the mire of low prices and onto the rocks of ruinous margins, and the other leading you up on the high level ground and to the best conditions the industry can exp€ct. I sincerely believe that this industry rvill not achieve stabilization until each dealer picks out a good leader and follorr's.

' Another important step in the stabilization of our industrv is to trv and influence the manufacturers and the West Coast Lumbermenis Association to compile and put into effect a new set of grading rules for structural lumber and change from number grades to name grades. When this has been done, then lumber can be sold on a grade marked basis and one of the main reasons for our present unstabilized condition eliminated. There are very few industries outside of the lumber business that markets their product on a basis of $1, $2, $3 or #4 grade. The name Common is bad enough, but for an industry to market a good product under the name of $2 or S3 Common is just