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An Opinionated Perspective on Custom Manufacturing in America
By Greg Williams - July
2010
A Prescription for the New Economy
By now certain concepts have been
widely accepted about the recession of 2008, almost like the diagnosis of a
disease. One prognosis about recovery is that we are moving into a new
economy rather than returning to what once was. We are advised by the
doctors (the so called experts and the business media) that to avoid coming
down with another case of the economic flu in the near future we need to be
inoculated with a healthy dose of innovation before venturing too far out
into this new economic reality. But what type of innovation will boost our
business immune system sufficiently in a new economy where viral bugs like
costs, regulations and competition seem to be mutating rapidly?
Well, first I can tell you that it's not the kind of innovation that has
made the term little more than a buzzword for many of us.
In this article we will explore a
common sense process for understanding exactly what type of innovation is
prescribed for this new economy, and some proven strategies to get it done.
In the past, the term innovation has
most commonly described new products or services that create new markets or
leverage untapped opportunity in existing markets. The innovation needed to
thrive in the new economy will likely go well beyond new offerings to
involve changes to your entire business model in order to be effective.
In a recent edition of Trends
Magazine an article featured a list of questions that every business should
ask about their business model in order to insure they succeed in this new
economy. While discussing that concept with a colleague, we began to put
together a similar list for small and medium sized wood products
manufacturing businesses. Here are five key questions we came up with:
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First, what is main thing
your business must do in the new economy to assure that you are paid the
highest price in a timely manner for your products and services?
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Second, is there anything
about how you produce your products that a customer can understand that
would justify paying you more than your competition?
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Third, what can be done
to reduce the cost of producing your products that will not reduce quality,
value, competitiveness or profit?
·
Fourth, what can be done
to reduce the costs of keeping, managing and training employees?
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Fifth, if your primary
customer base were reduced by half next month what would you do immediately
to replace that lost revenue?
If you can confidently provide the
answers to those questions you are well on your way to grooming your
business model to insure growth and stability in the next decade. If you
cannot answer some or all of those questions… well, you are probably already
well aware that some changes need to be made. So how do you begin the
process of improving your business model so it can thrive in the new
economy?
Let’s consider the best or at least
the most profitable answers to the five questions above. You might even
consider each one as a category by which to evaluate your business model for
possible innovation that is compatible with the new economy.
First, the best way to be paid a fair
amount in a timely manner for your products and services is to deliver a
flawless product consistently and more quickly than your competitors, or at
least in line with the customer’s best expectations. If this is not
currently possible for you to accomplish then you will constantly be chasing
market share in the new economy.
Second, unless you are in a very
unique market, there is virtually nothing about how you produce your product
that most customers would understand, that would compel them to pay you more
than one of your competitors that is offering a product that is similar in
functionality and appearance.
Cabinetry and wood products have been
trending in this direction for years but in the new economy it will be a
given. In many cases previously rigid architectural specifications have
conceded to this reality in most parts of the country and on many jobs,
resulting in stapled cabinets hanging right down the hall from cabinets with
traditional high quality dowel construction.
Third, the most effective ways to
reduce production costs without suffering any negative impact on your
products or market share can be divided into two categories: automation and
standardization of all processes that are high value or high profit and
elimination or outsourcing of all processes that are not. If any of the
processes that your business model requires to move a job from contract to
final payment are not adding significant value or effectively expediting
completion you have a weakness that is either reducing your profit or your
ability to compete in the new economy.
Fourth, the only practical way to
reduce employee related costs is to reduce the number of employees and the
overall skill levels required. This can factor heavily into the decisions
you make with respect to the third category of innovation above. As badly as
this country needs more high paying jobs, most wood products manufacturers
are not going to be able to provide them and remain competitive in the next
decade.
It is truly sad for me to accept this
reality, being a lifelong woodworker and cabinetmaker that started as an
apprentice at the age of 14, but this is now an inescapable truth. Between
the unknown costs that are being created by new laws, insurance
requirements, etc, the decline of skilled craftsmen in the workforce
combined with low interest in the skilled trades among young people, your
ability to retain quality employees and control related costs is decreasing
at an alarming rate. Ironically, your best shot at being able to create new
jobs in the future may depend on how effectively you can reduce these costs
now in order to adapt to the new economy.
The fifth and final answer is perhaps
the most dynamic. What would you do if there is a second bump in the economy
for your niche market or what if a large high-volume competitor decides to
expand market share and cuts your prices in order to get your customers? The
answer to survival in such situations is often not about where to look for
the new customers but how quickly you can adapt to service them
competitively and profitably when you find them.
The key is having a business model
behind your products and services that can shift into another gear quickly
so you can secure that new business by delivering flawless products on time
when you get a shot at a new opportunity. That requires a finely tuned chain
of processes that can take a job from contract through design and into
production for a wide variety of products without major rework on a first
run.
If that all sounds like a tall order
I can tell you that the worst part is over as soon as you have completed a
well thought out plan for changing your business – but here’s the secret -
don’t skimp on the plan! Nobody wants self serve discount flu vaccine,
right? In order to formulate the right vaccine to ward off the economic bugs
of the new economy it will need to match the strain of the new threats. I
haven’t seen in depth clinical trials on the solutions offered in this
article but I can verify that they are working quite well for our customers
in a wide variety of shops in the wood products industry.
It is my sincere hope that this
article will be helpful in your efforts to develop an innovative business
model and see your business thrive in the new economy.
Your questions are always welcome at
greg@1goal.net
Read the previous article on
The Road: Cap and Trade: The Demise of Small Custom Manufacturing in the
American Wood Products Industry.
Comments or feedback?
Click
here to email 1Goal.net.
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