Action list for increasing profits
October 20, 2009 | 7:00 pm CDT

You can manufacture cabinets, furniture or other wood products for eight hours a day, six days a week, but you don't make any money until the product is sold. The key to selling your product promptly and profitably is to make a product the customer wants.

To help in that effort, I've developed seven ideas for improving the products that a wood products manufacturer produces.

1. Don't assume price is the most important concern of the customer. Rather, expect that quality and on-time delivery will be the top two concerns. Prompt, personal resolution of any problems will be third. The ability to modify a design and make it customized may rank fourth. The ability to provide matching items in the future can be fifth. Price itself, if you can meet their major concerns, is not a significant top issue.

2. Don't assume you know what the customer considers to be quality. It's necessary to ask the customer to define quality and the important characteristics of the wood product they are considering purchasing.

3. Ask yourself how your wood product does (or can in the future) differentiate itself from your competitors' product, including big box stores. In other words, how can you make your product more desirable? Don't forget to include follow-up service as an advantage.

4. Visit the neighboring woodworking plants (not just those making the same products that you make) to see how they process wood and what is going on. Contact your state's natural resources representatives for a directory of wood-using firms in your own and adjacent states. Industry associations can be a source of knowledge as well.

5. Contact the local business development center (often associated with the county extension office) for assistance. Such lists may be online.

6. Key employees in your facility (not just you) should visit your present customers and learn what customers like and don't like about your product. Invite the customer to visit your facility to become more familiar with your operation. Make sure to educate the customer (and maybe a contractor or two) on critical wood-related, environmental issues, such as moisture.

7. Adopt quality consciousness throughout the company. Make this effort visible to every employee at all times, and make sure the product reflects this consciousness. If you are a manager, make sure that your actions and management decisions, especially the hour-to-hour decisions, reflect this quality effort. Let the customer know of your quality efforts, including the way your product is inspected and packaged.

Make your product valuable

A good manufacturing operation and its management constantly will be asking, "How can I make my product more valuable . . . more profitable?" Here are five general areas to consider as you evaluate and explore how you'll survive in the future.

1. Add value to present product.

Ask yourself what you can do to add value to your present product. What can you do to make it better or to upgrade? Consider design, appearance, hardware and so on. You might add a new feature to your present product, such as putting a cedar drawer-side in a dresser for supposed moth repellency and beautiful aroma.

In this effort, you need to make what the customer wants. How do you learn their wants? You need to ask them and not assume. Do you guarantee your product? Make it obvious to the potential customer that you will fix any quality issues.

2. Sell to new, different market.

Consider selling the same product you now manufacture, but to a different market, including new customers, where it's more valuable. For example, consider ways to reach the upscale remodeling market, or perhaps sell it to the do-it-yourself person. Consider home offices or home computer needs; consider our aging population and its special needs.

3. Make a new product.

Perhaps you should consider some new products (that is, new for your operation). These might be new major and sideline products that use present scrap materials. When making a new product that is already available on the existing markets, beware. Often, competition is well established. Therefore, if you consider an existing market, make sure it is a market not presently well-served or with room for expansion. Or maybe it's a market where you're substituting wood for another non-wood product.

4. Get more value from the present resource.

Your own manufacturing efficiency affects profits, as well as quality. So, try to make fewer low-value products; try to make less waste; try to improve processing. Survey your facility to see where wood is being thrown away (edge trim, end trim, defective pieces and so on).

5. Improve marketing.

Years ago I heard an expression that I do believe is a key concept: "I'd rather justify my prices being high than excuse my quality being low." What this means to me is that you need to focus on the customer when presenting your product. Marketing is not sales, as sales focuses on the products. Specifically, we need to tell the customer (perhaps over and over) what it is that makes our product better and desirable. Hopefully, you know your product is great, but don't keep it a secret. If you don't brag, how will anyone know how great you and your products are?

Taking this one step further, although we buy furniture and cabinets because they are useful to us, we also buy things to impress the neighbors. Is there some way to make your product more impressive? Maybe you should laser engrave a message on the inside of a door mentioning your cabinets are made of this particular wood species, that they are environmentally friendly because you use wood from sustainable forests and so on.

In fact, maybe this message should be on the outside so it can be more easily seen. What about your company logo? Is it visible? Does it have enough information for the neighbors to contact you? (Have you ever seen a new car without the manufacturer's logo clearly displayed?)

More specific hints

When looking for value-added, remember that you need a market for all manufactured products. With sawdust and scrap being only 1/100 of the value of lumber, don't put emphasis on the low-valued products.

As wood cost is probably 75 percent of the total material cost, yield (useful parts from a piece of lumber or sheet of composite material) is the biggest factor controlling profitability.

When first expanding, consider purchasing some production from another company to help develop enough products to satisfy the demand. (Often, immediate expansion to handle more production or expansion to be more versatile is not the best decision.)

Do some direct selling yourself whenever possible, but also consider that your expertise might be in manufacturing and not marketing and sales. Therefore, consider the proper use of a consultant, broker and wholesaler.

Watch cash flow. You can be profitable, but may have poor cash flow so that some months you are short of money. Maintain adequate reserves for slow periods or market downturns.

Test new markets

Test a new market by using someone else's equipment at first. For example, rent kiln space first before buying a kiln; have someone else make some turnings before you buy a lathe, etc. This allows you to test the market without making a large investment.

Many of the markets are developing a JIT attitude, which means they're not carrying an inventory. If they're going to install cabinets this afternoon, they want them delivered this morning and not sooner or later. So, maintaining an inventory will shift even more to you, the producer. Again, watch cash flow as this occurs; banks do not like to finance finished goods inventory.

Consider a retail outlet to move low-grade material left over from manufacturing or any non-repairable pieces you made. Possible customers include contractors, hardware stores, marinas, hobbyists, do-it-yourselfers, schools, sign shops, etc. Don't grade this lumber. Sell short wood, narrow wood, thin wood, low-grade wood, planer defects, trim pieces, etc.

With all the emphasis on the customer, don't forget yourself and your employees or community goodwill.

Look for niche markets

Keep your eyes open for niche markets. Most often they are small and local, yet highly profitable.

Remember that profit is the objective, not production.

Finally, more value-added means more care, perfection and accuracy are required.

Have something to say? Share your thoughts with us in the comments below.

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About the author
Gene Wengert

Gene Wengert, “The Wood Doctor” has been training people in efficient use of wood for 45 years. He is extension specialist emeritus at the University of Wisconsin-Madison.