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Component Manufacturing dverti$ dverti $ er
Don’t Forget! You Saw it in the
Adverti$$er
August 2024 #16301 Page #24
Retaining Profits Amid Margin Compression hat was widely expected has finally happened. Years of very profitable Todd Drummond high sales led to vast increases in capacity to meet that demand, but now we have declining sales volume—the classic too much supply versus not enough demand to maintain margins. Some like to call this margin compression, while others see it as lowering prices to keep paying the bills. Suddenly, what was considered safe or reliable customers are now offered attractive quotes from your competitors. As a component manufacturer (CM), how can you effectively counter margin compression while maintaining profits? Besides the constant battle of lowering manufacturing costs, there is one major thing your company may do to combat this never-ending struggle. Those who have done this have been very successful (though they prefer to remain quiet about it).
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“If you change the way you look at things, the things you look at change.” — Wayne Dyer Product Material is Irrelevant, and Time is Far More Important — This may shock many, but when you sell roof/floor trusses, you are not selling lumber units. You are selling products that happen to be made with lumber and truss plates. If it were cheaper, faster, and comparable material, would anyone care if they were made of other materials? Think about all the time and effort needed for communicating information, engineering designs, processing purchase orders, manufacturing, and delivery. There are a whole lot of steps involved in the entire process. One overriding common element is time. When orders are processed, everyone consumes the resources of your operation by varying degrees of time. Regardless of size or automation, every CM only has a limited number of hours in a day to process all the orders, and all have limitations. Knowing that time is the crucial element, not material, is vital to improving margins.
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