Just because the building economy remains strong, it does not mean you will be able to maintain your margins and net profits. Increased capacity on the supply side is accumulating at a substantial rate, and it will inevitably suppress lead times and margins. For those of you in the wood component manufacturing world, 2018 should have been a banner year for your net profits. It was a year when many rightly stated that, if they had greater capacity, they could have had even better sales and, therefore, larger total net profits. The natural result of such good times is that everyone expands their capacity. The increased competition goes far beyond just component manufacturing but also impacts lumberyard building suppliers.
Big money is being invested in all types of manufacturing by outside investors, such as Katerra, Berkshire Hathaway, and others. They are not only investing in the manufacturing process but all aspects of the complete building process. This inclusion goes way beyond what was considered typical vertical integration of component manufacturers supplying their framers in the field. A simple internet search shows multiple purchase announcements of material suppliers, architect firms, home builders, and many other formerly segregated trades in the building industry. If you think the increased competition somehow will not affect your sales, you may be in denial.
Investment in new equipment to better meet their needs is what most people naturally depend on when thinking of improvements. However, as an operations guru, I cannot tell you how often I find existing equipment being underutilized, and the new equipment being purchased is not the right fit for their changing needs. Yes, many of you should purchase new equipment to meet the challenges of increased competition, but how much investment and what type is not always obvious.
To stay truly competitive, you are going to have to do more than buy new equipment. The best investment that impacts every area, not just the manufacturing process, and has the potential for the greatest ROI is real process improvement. Process improvement is, without a doubt, the hardest to accomplish, least understood, and most resisted within the majority of companies. Often, upper management talks a good game about always looking for and implementing process improvements, but reality will not live up to the talk. The two biggest barriers are a company’s bureaucracy and, more importantly, people being unaware of better alternative processes. When people believe they have a better idea, too often someone else will view the change as a threat to his given area of expertise and perceived authority. Therefore, the new idea dies before it is given a chance.
The other most common problem is that people do not know how to make the process changes because they were never taught or exposed to alternative ways. People often do not know about better alternatives, because that is the case at all of my consultations. When I show people an alternative and better way to do something that they have been doing for years, they became defensive, and they look at things as wrong versus right, which only causes more problems. The new method may look like common sense, but it only became apparent after it was explained to them, because they never knew better. With the right process improvements, most manufacturing locations have a minimum productivity increase of 10%, with many achieving more than 20% productivity improvements with their existing equipment. Other improvements include fewer mistakes, greater optimization of material use, more sales potential, and, of course, greater net profit as a percentage of sales and the total amount of net profit.
Do yourself a favor and don’t forget to invest in real process improvements that make all the difference in the world to stay competitive in this ever more competitive industry.