These four commonly held practices within the component industry (wood truss and wall panels manufacturing) are actually causing millions in lost profits. None of these practices should be acceptable, and all are correctable. Is your company ready to make lean manufacturing continuous improvement be something more than just words?
Employee issues such as high turnover, skills, work ethics, and cost of labor to sales are all solvable. Yes, there are practices that can be implemented to resolve the seemingly never-ending employee problems that have too many companies needlessly suffering. The inefficiencies that any manufacturer leaves unresolved when not staffing with talented and reliable workers means they will suffer from potential millions in lost profits. If your company is guilty of this, perhaps it is time to try something different. For more on this, see my June article, "Three Simple Truths for Attracting and Retaining Talented Employees."
Too many falsely believe that the gross margin percentage rate accurately predicts how profitable any particular order will be. For example, how could an order with a 40% margin rate be sold for a higher price and contribute less to the bottom line, as shown in this example?
Order 1 at 40% GM for $15k – Possibly Least Profitable for Net Profits
Order 2 at 30% GM for $14k – Possibly Most Profitable for Net Profits
The answer is all about how much time is needed to process the orders. The math does not lie, and there is a simple method to fix this problem. A simple fix to the bidding process will make a minimum gain of three additional points for net profits. Maybe it is time to stop guessing how much each order truly contributes to the bottom line.
Is your company still using board foot or pieces to calculate labor efficiencies and pricing? Well, if thinking this standard industry benchmark is reliable, you really should read my December article, "How to Lose Millions of Profits with Linear Saws and Two-Person Crews," which goes into all the detailed math to explain how false they truly are for any benchmark.
Do you know how many companies are guessing what their company's current net profits will be during the year? Too many must wait until the end of the fiscal quarter or even the entire year before knowing how profitable they are. Why not know how profitable your company is weekly instead of guessing and waiting? There is absolutely no need to be using the inaccurate current methods your company may be using if not knowing is the standard operating procedure for your group.
If the lean manufacturing practice of continuous improvement philosophy is genuinely part of your company's practices, all four of these issues could and very well should be addressed head-on. All are solvable, including employee issues, but as Albert Einstein stated, "Insanity is doing the same thing over and over again and expecting different results." Maybe it is time to try and do something different.
