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Component Manufacturing dverti$ dverti $ er
Don’t Forget! You Saw it in the
Adverti$$er
January 2022 #14270 Page #35
Record-Breaking EBITA Exceeded Mid-Twenties for Many CMs for 2021 ast year should have been a record profit year for wood truss and wall panel component manufacturers (CM). Many of my clients have mid to upper-twenties Todd Drummond EBITA. A few made it to the mid-thirties of their total sales. Yet, so many find this hard to believe. Too many believe mid to high teens for EBITA is something to be proud of, but nothing more than that can be considered. Despite the reluctance of nonbelievers to admit it, the numbers are real.
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Those who have above-average profits do conduct their business differently than others. The Drummond Method is based on these high performers’ best-in-class practices. To achieve higher performance, they quietly operate using methods that are not so widely known or embraced. Of course, manufacturing is one key element, but so much money can be lost or unrealized in other areas of their operation. The Drummond Method helps every department work in concert to focus everyone’s attention on improving the bottom line. TDC has witnessed the highest performers have very low employee turnover and vacancies. They all know that no matter which department has high employee turnover, which creates unskilled labor, quality and capacity would suffer severely. Capacity would, of course, suffer severely with too many unfilled positions. Compounding with today’s employment issues, many poor-performing operators consistently have a terrible rate for both the turnover and vacancies, and they think nothing can be done. TDC finds high employee turnover operations are at about 60% or less efficiency. An example of a terrible turnover rate would be having only 1/3rd of the manufacturing employees possessing three years or more experience. Many things can and should be done, but the reluctant companies will not embrace the necessary corrective measures. In contrast, the highest performers have resolved the employment issue, using tools and strategies that many have discussed with TDC during consultations. If your company suffers from high employee turnover and vacancies, then you need to recognize that doing the same as you have always done is not working, and you have to be willing to try new practices. Pricing methods for the highest performers are closely held secrets that do not rely solely on the margin percentages of sale orders. Believe it or not, the standard method of margin percentage of the sales price, embraced by so many companies, is an unreliable measurement tool for understanding order contribution to profits. (Example: 30% vs 35% margins) This bears repeating in that the expected percentage of gross margin can be deceiving for knowing the true profit potential of any particular order. There is a far better method that is very easy and consistently shows the true profit potential. Continued next page
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