A
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Component Manufacturing dverti$er
Don’t Forget! You Saw it in the
Adverti$er
January 2020 #12246 Page #51
Look Beyond Manufacturing Improvements to Deliver Better Net Profits for 2020
E
ven though the new build season of 2020 is expected to be a good one for most, it likely will be more challenging to retain net profits Todd Drummond than many anticipate. Most component manufacturers (CM) have been buying equipment and expanding their operations like crazy. Also, new money has flooded into the industry and has contributed to added competition. All of this will put pressure on driving down margins and lead times, even if the new build starts remain the same as the previous year. If you want to stay competitive and grow your profits, buying equipment is not going to be good enough for most of you. You need to have all of your processes and mythologies evolve to a higher level of performance, which means what worked in the past may be no longer good enough. This includes areas beyond the manufacturing which most have not given much thought about for many years. Do you find sometimes, when you are offering a different perspective to someone, like an employee, that they take it as a personal afront and they will argue their point while doing their best to ignore what you are trying to explain to them? From their point of view, this challenge of their perspective is pointing out how wrong they are versus how right you, rather than simply approaching the situation with a different perspective. As someone whose business for 15+ years has been offering suggestions to help people improve their operations, I can certainly attest to the frustration that arises when the other person is looking at everything as right versus wrong, rather than a open discussion of new ideas. What worked in the past is a good thing, but one should view everything through the lens of continuous improvement philosophy (lean term – Kaizen). This means new concepts need to be seriously evaluated, tested, and implemented regardless of current or past conditions. So many CMs sell their manufactured components, wall panels and trusses, like they are a retail lumberyard selling a can of paint. When you are processing a work order in manufacturing, the margin calculations should be based on the time the work order is being processed, not the cost value of the order. However, too few can get past the concept of comparing pricing based on a margin based on time versus the cost markup method, because the industry is dominated by the cost markup method. When you truly understand and implement margin per time concept pricing instead of market cost markup methods, your company will make more net profits. Better net profits happen to every single company which implements this simple margin per time concept. However, most are unwilling to test this proven method in a spreadsheet, let alone in their company’s pricing practices. Continued next page
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