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Don’t Forget! You Saw it in the
Adverti$$er
July 2023 #15288 Page #25
Increase Net Profits by Properly Understanding, Scheduling, and Processing Rush Orders Todd Drummond
he summertime build season is upon the industry. For most wood component manufacturers (CM), and other manufactured suppliers of building materials, the lead time of new orders typically easily exceeds four weeks. Inevitably, a salesperson will ask, “Hey, can you do me a favor? I have an order that needs to be completed and delivered in two weeks instead of our current lead time.” How your leadership responds to this type of request shows a great deal about the type of leadership, efficiency, and flexibility of your organization. Processing rush orders should not be a stressful event and should be a common practice to increase profits. When determining if your organization should provide a rush order and how to schedule it properly, there are two major factors that should be considered.
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You should first determine if the rush order provides more actual net profit than other orders. Otherwise, why make an effort? Determining if one order is more profitable than other orders waiting in the queue is viewed incorrectly by far too many. Let me state one more time that most CMs do not realize that an order with a higher gross margin (GM) percentage of the sale price may not be more profitable, so that should not be the determining factor when understanding an order’s contribution toward greater profitability. If your company does not understand the true, accurately estimated time to process the order using work minutes (R.E., S.U., or Man-Minutes rather than lesser units such as board foot or piece count; see, for example, “How One Wood Truss Industry Leader Uses Industrial Engineering Practices of Work Minutes to Excel”), your company is losing an average of three to six points in profitability every year. Once again, I will state that orders with a higher percentage of GM to sales dollars may not actually be more profitable. The math is very simple, and the vast majority of CMs are not performing this simple GM per Work Minute calculation in the quote reports. (For more about the GM per work minute calculation, see “Change Your Pricing Formula and Make More Net Profit”.) The next step is to properly determine how the rush order will affect the current design and manufacturing capacities, which is a serious problem for many CMs. Simply telling the design and manufacturing leaders to “make it happen” is a Continued next page
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