You can regard our June/July issue's cover story on lean operations as a sort of commencement address for LBM dealers. After years of forced starvation, you've graduated to an environment in which demand keeps rising and materials prices are way up. Top-line revenues are looking better than ever. So now it's time to refocus your education and study how to boost the bottom line. And while at first it will feel like painful self-denial, you'll be glad you did.
Three reasons drive the need for you to boost profits. First, lots of independent dealers were lucky to net 3% of sales during the downturn, and for most businesses a 3% profit is just treading water. Recent indications that dealers are up to 3.5% aren't good enough. Second, when you get busy after hard times, it's easy to get both complacent and sloppy. Dollars keep slipping out of your pockets. And third, if you believe this is a cyclical industry, then you know that preparation for the next downturn should begin as soon as the previous one ends.
Peter Ganahl of Southern California's Ganahl Lumber refers to a growing market as the "Go Go Zone." During that time, you should be generating as much profit as possible. Then, when the downturn comes, you needn't treat it as a famine. Ganahl calls downturns "The Opportunity Zone," becauses that's when you use some of your Go Go Zone profits to invest at a time when prices have gone down. Ganahl did that during the last downturn when it acquired land where a car dealership in in Pasadena, Calif., had lost its franchise. Now the Pasadena yard is among Ganahl's stars.
Higher prices will increase your profits a bit, but consultants say this is the time to do more. Start by assessing your current carrying capacity in facilities, equipment, and personnel. Avoid ivesting more in any of those things until you've maxed out what you have. Then figure out how to increase that current capacity through tactics like lean management. Scott Morrison's feature has a wealth of ideas on how to do that.
Only after you have reached your old idea of peak capacity and figure out how to raise the bar should you add people, equipment, and facilities. That won't win you any fans, but it will enable you to fulfill one of your key duties: ensuring the long-term success of your business.
The big, public dealers can go for years with little to no profit. You don't have that option. This is your time to go and grow.