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Don’t Forget! You Saw it in the
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April 2023 #15285 Page #25
A Message of Caution to New Component Manufacturers Todd Drummond
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his message is for the new component manufacturers (CM) who have recently and will shortly be entering the component manufacturing industry for wood trusses or wall panels. First, welcome to the industry – it is very rewarding, but I must caution you about this new endeavor. It is not for the faint of heart, and it has complexities that are not so apparent. Here are some cautionary points concerning market conditions, vendor advisements, benchmarks, pricing, and process considerations to keep in mind as you move forward. Did you know that the average net profit for a CM owned by LBMs is 5 to 10 points lower than that of independents? Yet, one former LBM CEO of 17 lumberyards with two CM plants stated that his two CM plants made up only 10% of their sales but then contributed about 30% of his net profits. He wished he had given the CM division far more focus and resources. The CM area or location is a manufacturing operation, not a retail yard. Please do not attempt to manage it as a typical LMB division. It takes a different mindset to manage day-to-day operations effectively. For more about this, see Truss and Wall Component Manufacturing for a Lumberyard – Pros and Cons. Timing is everything, and even though now is not the best time to enter this industry, you must play the hand you are dealt. The coming years will present all CM operations with market conditions typical of this industry’s natural ups and downs. And currently, we are facing a downward trend that creates significant pressure on the profit margins of all CM operations, regardless if they are a new or existing operator. Interest rates are going up to slow the economy. This rate hike will negatively affect every housing market, reducing the demand for new homes. Expect new and existing competition to fight harder to take from your sales. For more about this, see Don’t Be Blind to Simple Truths for the 2023 Build Season.
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