|Home » Forums » Business » Message||Login|
You are not logged in. Consider these WOODWEB Member advantages:
Low hanging fruit7/16/17
If you go to your crew and ask them "With our current shop, could we build this kitchen in two days?", the answer will probably be "No".
If you rephrase the question and ask instead "What would we need to have in place to build this kitchen in two days with our current shop?" you get a completely different answer.
The range of allowable answers is predicated on how you ask the question.
A similar question might be "How would go about making a greenhorn useful and capable of producing profit on his first day?"
A lot of times we rationalize poor quality training by saying "It's an investment". Training is not an investment. Your workers have legs. Training is an expense. If you want to invest in something you should invest in the systems for training. Rather than push training onto a new worker you should instead pull a new worker into your training system.
In a mature industry all the low hanging fruit has already been harvested. For this reason all the opportunities that remain are hidden under a rock or on a branch that is hard to reach.
The two biggest weak spots in boutique cabinet shops is training and choreography. Getting people to do things the right way and getting them to work on the right things at the right time are where most of our opportunities for innovation lie.
Boutique shops are characterized by a world of inefficiency. That's why we get such incredibly high prices for what is essentially just a stack of boxes. Our competition are the people who set our price for us. If they insist on, or are comfortable with, burning two out of $5 that's $2 we get to keep if we merely choose not to.
Merely choosing to not be inefficient is not, however, any kind of panacea. You have to figure out which activities you perform that only add waste and which of those activities can be dispensed with. There are very specific strategies for doing this if we are so inclined.
There is also the school of thought that says "If it is not broken don't fix it". This one ranks up there with "There are ten good ways to skin a cat".
This last method works until it doesn't.
What prompted the last post was an examination of my website traffic.
I get a lot of business from HOUZZ.
In March there were 4.
Overall unique visitor traffic is still pretty consistent but this particular source seems to have slowed down significantly.
The last time I stopped paying attention to social media we became irrelevant very quick.
Interesting. I despise promoting on social media but then we are trying to focus on a wholesale business model (selling to contractors, designers, spec'd by architects).
When things are slim I contemplate jumping off on a retail sales arm but everytime I come close I talk myself out of it having worked in that trade/field for 30+ years.
If you start noticing that most of your customers communicate with you via text or email you might want to consider that maybe your target demographic has shifted.
If most of your clients communicate with a fax machine it's because they haven't changed the batteries in their hearing aid.
If you want to hunt big game (or have your choice of small game) you need to figure out where the watering holes are. That's where your clients hang out.
Maybe you know this, Cabmaker, but I found Houzz is very responsive to activity, even if it's just posting a new photo a couple times a week. Simply browsing other user's photos and adding them to a "favorite work by others" folder seems to yield hits.
Your post about low hanging fruit is absolutely on point. It takes exceptional focus to execute, among the daily distractions of actually producing a product on a deadline.
Maybe it should read the lowest hanging fruit?
I am not sure what exactly has happened with the drop off of links from HOUZZ to my website.
My site is consistently at the top of the page in our category listing and this has been achieved organically. I made the choice to not purchase position as a sponsored site because I wanted the site to have some nutrition when you got there.
In other words we haven't done anything different on our end so the change in traffic must have come from the buying public. Either the customers in my marketplace have found a new watering hole or demand for new kitchens is diminishing. There aren't any other changes in the local cabinetmaking landscape I am aware of so I have reduced it to these two variables.
The watering hole shift would most closely align with what happened the last time work went soft.
How does the change line up with your typical seasonal sales? Hard to imagine that the market has dropped off that sharply in a couple of months. March is tax refund season, that usually generates a lot of interest at least.
I would have said that Houzz changed their algorithm but you say that you're still floating to the top as before. I'd also say you're smart for not paying for their subscription, I looked into it a few years ago and they were asking a lot for not much assurance that I'd be better off than my unpaid listing.
The market has not dropped off at all.
I suspect that HOUZZ has so much eye candy that it is hard to differentiate yourself anymore.
Could also have something to do with how the site is curated.
I've followed this post all day, but I'm not sure what subject is...
lack of trained employees?
How does the competition set your prices?
Why do you compare (what we do) to or with boutique shops?
Are you trolling me or do you actually not understand what this thread is talking about?
FWIW I hear good things about one called "Next Door"
I posted several questions to help me understand the original post. Whats the main idea or point?
Are you saying we should tackle inefficiency in training systems to produce more profit?
"Our competition are the people who set our price for us."
My competition has never decided what my cost or profit has been.
I get the hunting analogy, but standing by the water hole only works when the game is going for that water anyway. I'm picturing a guy hunting new clients in the cabinet showroom of a big box trying to steal customers. The client was already there prepared to buy cabinets. Maybe that's how the competition sets pricing.
However, you can also bait the game. Its called marketing, something to attract the customer to me instead of the other guys. Marketing is an investment, and should be in place year round. The bait can be great websites, magazine ads, and social media. I want to attract the people that want what I do, not the low hanging fruit.
In a mature industry enough capital has been attracted to opportunities to essentially beat the price of something down to what it takes to do the job.
A good example might be Starbucks with their $3 cup of coffee. As soon as Tullys sees that Starbucks can get $3 for a cup of coffee they open a store directly across the street. Two coffee shops competing for the same real estate increase the price of the real estate. The price of coffee does not increase but rent goes up.
As rent goes up profits go down. Eventually what is left provides a return on investment just slightly above the cost of providing the product.
A sharp entrepreneur looks at that $3 cup of coffee and surmises that if he can get a business to lend him their parking lot in the morning he can provide a $3 cup of coffee without all the overhead. This works until the landlord sees what is going on and raises his rent or the neighbor across the street opens his own shop.
The next innovation, of course, is baristas wearing bikinis.
There are only three strategies to business. Strategy 1 is to own the only grocery store in town. You will always make money with this strategy. Strategy 2 is to have deep enough pockets to wear your competition down until you own the only grocery store in town. Strategy 3 is innovation. With Strategy 3 it is important to stay under the radar so that the deep pockets guys don't notice your niche.
Trying to find innovation in a mature market is like following a bunch of Biafrans through a field of corn. You have to be pretty sharp eyed to see a wrinkle they left behind.
In a mature industry all opportunities for innovation either lie under a rock or are on a limb that is really hard to reach.
The two biggest opportunities for innovation in cabinet land are training & choreography. There will be no end to and plenty of exciting new pieces of technology at the Atlanta Woodworking Show but there will be no great breakthroughs in training systems and choreography.
Another way to phrase it is: what are we doing that is truly adding value? Then get creative about optimizing those processes, and eliminating all forms of waste, and creating a company culture that does the above! Easy to say, much harder to do, but necessary IMO. This is what let a tiny little company (and others) in Japan, (with no natural resources), decimated after WW2, in 50-60 years dominate an already seemingly mature industry. The bulk of that time they were more profitable, and weathered economic down-turns a lot better than the 'mature' competition.
"Our competition are the people who set our price for us."
AWI cost seminars years ago add a saying, cost is fact, profit is policy.
I think when someone says the competition sets the price they are saying they affect the profit policy.
If all the shops are charging $3 for coffee then you can charge $2.90 and get sales assuming you can produce a cup of coffee for less than $2.90 fully burdened.
If you can make a cup of coffee for $1 fully burdened why would you sell at much less than $3?
On the other hand if it costs you $4 to make a cup of coffee you need to start selling doughnuts or sandwiches or find the portion of market that likes they way you treat them and will pay $5 for a cup of coffee.
7 years ago when the market was in the toilet it made sense to sell at lower cost, these are the times to sell close to market and make some rainy day money assuming where you are located has a fair amount of work available.
The most important element in determining the profitability of our cabinet shops is the ratio of sales to overhead.
How much of a role efficiency or training or choreography plays into that is up to each individual shop owner.
We should all be solely focused on one thing: Net Profit
NP = T - OE
Net Profit equals Throughput minus Operating Expense.
Operating Expense is limited by zero. Throughput is limited by infinity.
Where is your energy better spent? Designating where the salt & pepper shakers go on the break room table or doing the things necessary to increase sales by 20%, 40%, 80%...
You understand, of course, that the salt & pepper shaker analogy you allude to is just a metaphor for standardization.
Observing that Operating Expenses are limited by zero and Sales are limited by infinity is like saying "the sky is sometimes blue". You still got to deliver everything you sell and your ability to deliver is a function of your costs, costs being a metaphor for the mechanical friction that impedes you from delivering.
Standardization will decrease your costs and at the same time increase capacity (which is the true limit to throughput).
Over the past 24 months our sales have doubled and our profit margins have quadrupled. During that time we've made no improvements to methods, training or choreography.
I have in the past exerted quite a bit of effort on increasing efficiency with little improvement in profit margins.
Being efficient is a good thing until you reach a point of diminishing returns. I'm not an advocate for inefficiency, but I am an advocate for focusing your energy where it reaps the biggest dividends. The relentless pusuit of efficiency will indeed lower the OE from the equation posted above, which in turn will increase the NP. But no amount of Lean philosophy will ever lead to a quadrupling of profit margins. And no amount Lean philosophy will stave off entirely the plummeting profit margins of a down economy. Will it help? Sure, in tiny barely measurable amounts.
Being a disciplined Lean practitioner is anything but low hanging fruit. It is an arduous process that in my opinion, in our particular industry, does not yield adequate results for the effort. We are a service industry 1st, artists 2nd, and manufacturers 3rd. Our focus should not be on chasing the same philosophy as Boeing or GM.
If you are growing at the rate you are I am going to bet that your problem is getting decisions out of customers in a timely manner.
I'm going to go out on a limb here and suggest that maybe some of your apparent success has to do with the velocity of the economy. A downturn here will cause some of the people you bid against to lower theirs (and your) pricing structure. On that day cost containment will become more important to you.
The irony here is that if you are extremely successful in spite of not caring at all about efficiency you probably have some very cost effective improvements available if you would not put yourself in charge of this decision.
It's been many years since there's been a healthy discussion about Theory of Constraints on this forum. When Bob left, the discussion left with him. CM has picked up the torch, but CM is a stark advocate for LEAN. But truth is truth, and TOC is as relevant today as it was then.
Lean in and of itself is not bad. But it ignores one simple truth. Any amount of energy, ANY AMOUNT, spent on anything other than your constraint is a waste of time and resources. Or in other words, any amount of time spent strengthening anything but the weakest link in a chain is a waste of time and resources. It actually contributes to the problem rather than the solution.
I would guess that the participants of this forum are predominantly small shops. It is not hard to be efficient in a small shop. The information from client to shop floor is about as direct as it can be. Most likely, the methods used on the shop floor are already pretty efficient.
We all want to get better. We all want to make more money. The way to do this is by identifying the ONE weakest link, fixing it, and moving on to another. You can not fix everything all at once, it will only make it worse. What is YOUR weakest link? Or in other words, what is the one thing that is preventing you from making more money? I highly doubt its in your information systems or shop floor inefficiencies. For example, what good is investing a bunch of time and energy into training systems if you're not growing or if you don't have a lot of turnover?
I do agree with CM on two things in particular.
First, getting decisions out of the customer was indeed my companies constraint. I have worked on nothing else for 10 years. The solution involved examining everything.
Second, everything starts and stops with the economy. We are powerless to affect it, but what we can do is put ourselves in a position to capitalize when it is good and survive when it's bad.
Had I spent any amount of time over the last 10 years improving something other than my own constraint, I would not be in the position to capitalize on the health of this current economy.
Is shop inefficiency your constraint? Is information flow from the office to the shop your constraint? Is training your constraint? Then by all means, address those concerns. But don't do anything until you understand what your constraint is, because if you get it wrong you've accomplished nothing, and probably made it worse.
Good arguments on both sides.
I agree that sales trumps all.
But it is hard to argue against he success of Toyota, and it is hard to argue for the success of GM.
If haven't searched on Houzz lately, you might have missed that they have complicated the search process. I think the search traffic may be routed the same, no change there. But Houzz's new method of helping people search is asking a lot more questions. I believe the free listings were being too successful, and now they are trying to move traffic to benefit paid subscribers. It looks like the people who stay with the search, may be a better qualified customer. Plus they are trying to go ahead and schedule a contact or response. That may be scaring off casual looker. But searching is a whole new situation on their site. My traffic has dropped as well.
Right now there is close to zero discounts on some vehicles and similar vehicles across brands are all priced within 1k of each other regardless of "cost".
The automakers adapt quickly to market pricing. None of them want to cut their wrists selling at cost plus a few points, they will if for some reason it will save there business.
Maybe the same vehicle in a state with a stagnate economy will have incentives and deals, we priced a vehicle from San Diego to Shasta and the prices were within $100 for the brand and model so we bought from the dealer 1000 feet away.
One of the things I tell customers all the time is that there is nothing particularly scientific about much of anything in the construction industry. I tell them they either need to get comfortable with a lot of inefficiency & unprofessionalism or else they have to keep living in their house the way it is.
Some of the unprofessionalism comes from the trades. Some of it comes from the homeowners themselves. The customers, for example, rightfully expect that an investment counselor advising them on a $10,000 investment be fully trained & certified. These same customers are completely content with depending on a construction foreman with a GED to manage their $200K backyard addition. They want to hold jobsite meetings at 5pm because it's most convenient for their work schedule. At 5pm the other people at the meeting are tired, hungry & distracted. It never seems to amaze me how people who are otherwise very businesslike & professional in their career can't understand how this is necessary in their personal remodel. They are like the cabinet shop employee who is Albert Einstein when it comes to managing sidework but who constantly needs to be retrained about how commerce works when they are on the clock.
As AC points out there are many things we have no control over. Recognizing this the focus therefore becomes one of mitigation.
I was referring to the GM business model verses the Toyota business model.
Or the batch system and economies of scale verses the Toyota Production System.
IMO Toyota is best company in the world today.
Which by the way dismisses the TOC through their actions. As has Prasad Velaga through his repeated posts.
I will get back to mitigation.
The second thing I tell customers is that, as AC pointed out, custom cabinet shops are a service business, not a products business.
Our pricing is not based on our production costs as much as it is based on our opportunity costs.
Kroger Stores does the same thing. Sometimes a box of triscuits are $1.60. Sometimes that same box is $2.50. A six pack of Elysian IPA beer is $7.99 at the first of the week and $9.99 Friday, Saturday & Sunday. My hunch is that costs of producing those triscuits or that beer does not fluctuate according to the day of the week.
It was cabinet shops that informed surge based pricing for UBER.
What do you mean by opportunity cost?
About ten years ago there was a lot of discussion on this forum about Lean Manufacturing vs the Theory of Constraints.
TOC is an intellectual construct by an Israeli physicist name Eli Goldratt. The primary tenet to this logic is that there can only be one constraint to any organization and efforts not directly to elevate this exact constraint only create phantom improvements in the organization. This premise is based on arithmetic and the logic is hard to refute.
Lean Manufacturing is predicated on the logic that every activity in your enterprise either adds adds value or it adds waste. It can only add one or the other. For an activity to have value it has to be valued by the customer. There are two kinds of waste: the kind you can get rid of and the kind you can't.
For much of the woodweb discussion these two competing theories were framed as an either-or scenario. In reality I think they work very well together.
TOC is a great way to understand where to put your focus in order to break your constraint. Lean manufacturing gives you the tools to actually get the job done.
It's hard to disagree with the "if it ain't broke don't fix it" school of thought, particularly WHEN you are making money. A lot of very successful contractors care very little about how many dollars fall out of the bucket as long as lots of dollars fall into the bucket. It is easy sometimes to confuse this kind of success with brilliance.
It could be that AC's current prosperity has more to do with pricing than production. In a hot economy there is enough demand that you can continually increase your pricing. We are doing that ourselves right now.
We are also increasing our production output. The second part, however, has more to do with our manufacturing methods. Pricing and production are not particularly linked at my shop these days.
What do you mean by opportunity cost?
I would like to also throw another wrench into this discussion.
Mark Woeppel wrote a book called "Manufacturer's Guide to Implementing the Theory of Constraints". In it he makes the argument that while there is indeed one constraint that limits throughput in your organization you can decide specifically where you want that constraint to be.
This is a far different theory than Goldratt's Herbie character who spent his time walking around the desert trying to figure out where his constraint was.
What I mean by "opportunity cost' is the missed opportunity I forgo when I select one project over another.
Take, for example, the five month long project we did last year. This was a project that sucked up all of our bandwidth. It was extremely high quality, high dollar, fast paced, emotionally satisfying work. The opportunity cost for this project was very high. We had to turn down a lot of jobs in order to take this one on. It was definitely not my most profitable course of action but I would gladly do it again.
A couple of years ago we did a kitchen for $146K. This one was very profitable but had a very low opportunity cost as the economy was pretty weak and we did not have to turn down much work to take it on.
Opportunity cost is the difference between what you could earn with your investment if you allocate the funds to some other endeavor and how much you earned with the choice you did make . The opportunity cost is the earnings spread between those two projects.
Back to low hanging fruit:
AC: your TOC argument is purely based on arithmetic.
While lean efforts don't necessarily elevate your specific constraint they do help to free up resources that you can bring to bear on that constraint.
I commented earlier about the irony in your lack of focus on efficiency. I would guess that a lean practitioner could look at your operation and see all kinds of ways to increase your throughput.
You are right, however, that this should not be YOUR focus. Emphasis here being you. You personally have too many other things to focus on in building your organization than to be dealing with how your salt & pepper shakers are managed. This does not mean, however, that you could not benefit immensely by having someone other than yourself focused on this project.
Which brings us to amnesia.
I can't remember the last time a boom economy lasted more than four years.
Ok that makes sense.
Yes, we are experiencing the longest streak of job growth in history.
It's all because of Obama. (8^())
You raise a good point. The economy this administration started with was the one Obama created. Think back to what life was like in 2008 and what it was like in 2016. Ginger Rogers never credit either. She had to match every move Fred Astaire made except she had to do it backwards...........in high heels. Obama had to do it with Mitch McConnell announcing on day one he was going to fight Obama every inch every single day.
But far be it from me to infuse politcs into an Woodweb Thread.
Putting AC in charge of recognizing how lean manufacturing could help his company prosper is like putting cabinet secretaries in charge of improving federal agencies whose stated goal is to abolish those agencies.
That was a joke period.
Politics is IRRELEVANT, not that you will hear this...
I know, Pat.
Another way to re-phrase the topic of opportunity cost might be to think about some of the projects in your shop.
We have one right now that I wish I could re-price. The hours for construction are about what I anticipated when I bid the job. I could, however, sell those hours for a lot more money if I was selling them today.
My costs of production haven't changed but my opportunities to sell the work have. Back when I agreed to do the job the pricing seemed pretty good.
Which brings me to some of those that real dogs that seem like a nuisance when they first arrive. Whenever I've acceded to taking one of them on I turned out to be very grateful for the revenue.
The key is, when you take a job on be enthusiastic and cheerful. This goes a long ways at the end.
I think recognizing opportunity cost is critical in job selection and what to bid. When its slow we can't be as picky.
When we are running full capacity then slipping in a simple job is something we will do as everything keeps slipping and moving these days so we have been overbooking.
What we can't do is slip in a job that is engineering complex or high use of a single machine or area.
Even if we make money on that project the ripple affect may be an overall reduction of profit or increase of OT or personal use of energy.
Alan, You make a very good point about needing to overbook schedule. The jobsites are completely bogged down right now, sometimes to the point that we have to stand on cabinets much longer than we used to.
The primary culprit these days seems to be the window manufacturer. We can build about 75% of the job but find ourselves having to wait for information all the time now that's keyed to something that is not yet in the building.
This happened to us last year too so we stopped and built 30 storage carts so we could double stack cabinets while they loiter in the building. We made these carts all the same height, exactly what it takes to slide onto or off a scissorlift work bench. The smartest thing we did was spend significant dollars on quality castors. These allow one person to move a lot of weight elegantly.
Another thing that helps is that we build in small batch sizes that are easy to get to completion. When you push it in the corner it is done. Much easier to keep track of production status this way too.
Have also shifted a bit in the nomenclature we use to describe cabinet packages. We build faceframe construction. Sometimes the faceframe will encapsulate just one cabinet. Sometimes it will wrap three boxes.
The identifier is based on how big the package is when it is carried onto the truck and/or into the kitchen. Each faceframe is given an Alpha-character description. An example would be faceframe A - B - C - D etc. If the faceframe has one box the box would be called B-1. If the faceframe has 3 boxes the respective boxes would have the identifiers of C1 - C2 - C3.
Cabinet doors are now numbered 1-25.
First ID is the faceframe
We are evolving to doors 1-25 in order to better kit up the parts. By codifying the doors with a standardized-repetitive number we can develop storage racks that act as a kanban to signal production status.
This is all in preparation for a new product line we want to launch. We already build the flattest frame & panel door in the United States. We are soon going to be the very best at high-end bottom feeder work.