The resource for a small cabinet shop is the shop. This is also the place where most of the investment is and just about all the costs occur. While it is correct that only the installed set of cabinets represent value in the customer's eyes, it is in the shop where the value for your business is created. That value can be expressed as so many dollars of revenue created per productive hour.

Measuring value

In my travels I have seen all kinds of numbers when comparing shops with similar activities. What has become clear is that the higher that number (revenue per productive hour) the more money is being made. We can equate this concept as the opportunity of sales dollars created per productive hour, otherwise called the opportunity cost per hour. Based on a 40-hour week, a man works 2,000 hours per annum. Using this number as a constant we can readily come to a conclusion as to how effective our business is versus others in the industry.

Another such matrix is also measured by dividing the total sales dollars by all the people working in the company. I find that using the more specific one related to the productive workers more useful and more concise. This does not mean that others not working on the shop floor are not productive but their costs are covered by the overburden and determined as fixed costs, whereas direct labor is a variable cost.

Why opportunity costs vary

Would it surprise you that the opportunity cost per productive person on the floor varies from less than $100 to more than $500 per hour? To be sure, several factors contribute to such a variance, factors such as the value of the material, the market area, market segment, efficiency on the shop floor, plant layout, machinery employed, the attitude to make versus buy and the price obtained.

The one overriding criteria common to all shops is this: The level of production in the shop varies on a daily basis for reasons that can be related to all kinds of factors, such as:

The crew goes out to install, and nothing is done in the shop.

The sawyer works out his own cut list while standing at the saw

Daily output is measured in dollars rather than components or cabinets produced.

Due to incomplete and precise cut lists, parts have to be fitted rather than predetermined.

Custom part sizes are made in the old empirical system rather than metric.

Incorrect door sizes are ordered leading to remakes and go-backs.

And so the list goes on.

To take the install issue stated first, what should you do rather than you or the whole crew going out to install leaving no one to produce anything? Subcontract the install. The most expensive install costs by a subcontractor I have seen anywhere is $500 per day; this equates to $62.50 per hour. While this is a good return for two men with a set of tools and a van, this will represent a loss for your business if no productivity takes place in your shop on that day.

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