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Component Manufacturing dverti$er
Adverti$er
Don’t Forget! You Saw it in the
April 2018 #10225 Page #18
Why It’s Time to Add Component Manufacturing to Your Lumber Business Housing trends and a shifting competitive landscape both point toward pulling the trigger
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e’ve all seen the predictions: Component manufacturing is going to grow ever bigger as labor remains tight and big builders get more efficient. And with component manufacturing gross margins being higher than what you get for selling commodities, it’s a good time to ask: Shouldn’t you stop buying trusses, panels, and pre-hung doors from an outside vendor and start making them yourself? I think so—as long as you accept the challenges you’ll face as you seek to reap the benefits. Changes in the competitive landscape demand that you start contemplating this. The biggest multi-location lumberyards already have their own component manufacturing facilities and are building more. As they do, independent CMs will have to start selling directly to builders if they want to keep up their volumes. Increasingly, you will lose this part of the sale and, therefore, the added margin dollars such deals provide. These trends also will leave you being seen as less than a full-service provider. Why buy bits from you when they can get a bunch from another place? You end up the loser. I have had interesting conversations lately with several clients who are thinking of starting component manufacturing facilities but weren’t sure they should. To them—and to you—I would ask these three questions: 1.
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Does your company have enough sales to support the cost to make component manufacturing profitable? (Most clients reply with an unqualified yes.) Are there enough independent CMs in the area for you to continue purchasing truss and wall panels from them and remain competitive in the market? (The number is diminishing, I typically hear.) Is your company financially capable of the startup cost and other financial obligations that will be necessary? (Given that times are good for most dealers, the answer for now is yes. So, if not now, when?)
Every new endeavor has a startup cost beyond the normal acquiring of assets. There is the dreaded hiring of new personnel, learning new processes, and all the other time-consuming technical skills needed. Those challenges typically have been enough for many companies to opt for acquiring an existing CM. However, you might instead have to start from zero. If that’s the case, here are two common issues you must overcome.
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